Why This Big Bank Stock Might Have The Best Dividend
It is clearly the best-in-class among the top 15 banks.
Banks typically have some of the best dividends on the market, especially large banks. That’s because they are generally stable, well-established businesses that are highly regulated and must meet stringent liquidity requirements.
Among the 15 largest banks, PNC Financial (NYSE:PNC), the holding company for PNC Bank, might have the best dividend out there.
PNC is the seventh largest U.S. bank with roughly $549 billion in assets as of March 31. On July 3, the company boosted its dividend for the 15th consecutive year, raising its payout by 6% to $1.70 per share, up from $1.60 per share the previous quarter.
“The increase in our dividend reflects our continued financial strength and our board’s confidence in our strategy and outlook,” William Demchak, PNC chairman and CEO, said.
Let’s examine why this dividend is the best in its class.
Best in class
When examining a company’s dividend, there are several metrics to look at. One of the most important is yield, as that determines the size of the payout, based on the share price.
Currently, PNC pays out a dividend yield of about 3.26%, which is almost three times the 1.23% average yield of the S&P 500. Of the largest banks, there are a few that have higher yields – including Truist (NYSE:TFC) at 4.57%, US Bancorp (NYSE:USB) at 4.17%, and TD Bank (NYSE:TD) at 4.12%. However, PNC stands taller when considering the range of key metrics.
Another metric to look at is how many years in a row the stock has raised its dividend. This is the 15th straight year for PNC, including 2020 when many banks either suspended or cut their dividends. Only a few banks have streaks that long, including JPMorgan Chase (NYSE:JPM), State Street (NYSE:STT), US Bancorp, and BNY Mellon (NYSE:BK).
Investors should also look at the payout ratio, as that determines how much of earnings are going to the dividend. For PNC, the payout ratio is around 44%, which is in the sweet spot. Low payout ratios, say under 20%, mean the company is probably not distributing enough of their earnings to dividends. High payout ratios, say over 50% to 60%, mean the company may be stretching itself too thin to pay a high yield and doing so at the expense of other investments.
Solid long-term returns
The tiebreaker, if you will, when picking a great dividend stock, is the actual performance of the stock over time.
PNC stock has been a solid performer over the years, with a one-year return of 25%, a five-year average annualized return of 14.5%, and a 10-year average annualized return of 7.5%.
It outperforms US Bancorp, the other large bank that best rivals it in yield, payout ratio, and annual increases. US Bancorp has a one-year return of 22%, but then its five- and 10-year annualized returns fall off at 6.1% and 1.0%, respectively.
One could make a case that Fifth Third (NASDAQ:FITB), the 18th largest bank with about $212 billion in assets, matches PNC as a top bank dividend stock. Fifth Third has a yield of 3.44%, a payout ratio of 43%, and is on its 15th year of dividend increases.
Plus, Fifth Third has excellent long-term returns. Over the past year the stock has returned 19%, which is short of PNC, but it has a higher five-year annualized return of 19.0% and a comparable 10-year return of 7.6%.
So, PNC clearly stands out as the best bank dividend stock among the top 15, but one could also make the case for Fifth Third as an equally strong dividend stock among the top 20.
This post originally appeared at ValueWalk.
Category: Dividend Stocks To Buy?
