Bank Stocks: Back in the Yield Game

With 10-year U.S. Treasury Bonds now yielding a paltry 2%, investors have been rushing into the higher yielding REITs, utilities and some consumer staples. Now with the Federal Reserve approving the capital plans of the major banks under CCAR that allow for double-digit dividend increases, bank stocks will now join the yield party.

For example several of the major banks will now be offering dividend yields in excess of 3% and that will make their shares competitive in the yield universe. (See Table 1 below)

Table 1. Indicated Dividend Yields for Selected Bank Stocks

Bank     Stock Price*   Dividend      Pro forma
                                                              Yield

JPM              110.             3.60                 3.3%
MS                 44              1.40                  3.2
PNC             136              4.60                  3.4
USB               52.2           1.68                  3.2
WFC              47              2.04                  4.3

* As of 6/27 after hours.


Note: I am long JPM and PNC.

In the Dow Jones Newswire, "Wells Fargo Defers Reckoning On Troubled Mortgage Balances," Nov.3

Because of troubled borrowers like Annan, Wells Fargo risks tethering itself to what former Wall Street executive David Shulman terms "wasting assets," since borrowers facing years of negative home equity have little incentive to maintain or improve their homes. "You've got to give the homeowner incentive," says Shulman, now a senior economist at UCLA Anderson Forecast. "Otherwise, they're sitting there as a tenant."
http://online.wsj.com/article/BT-CO-20091103-709084.html?mod=wsjcrmain