3 Regional Bank Stocks With High Dividend Yields

Regional banks in the U.S. have struggled over the past year. The failure of Silicon Valley Bank sent shockwaves through the U.S. banking industry in 2023, particularly affecting smaller banks.

More turmoil hit the regional banks in 2024, with New York Community Bancorp NYCB seeing its share price down by nearly two-thirds year-to-date, on worries over its loan portfolio.

But not all banks are getting swept up in the panic. This could be an opportunity for dividend investors to buy high-quality regional bank stocks.

The following three regional bank stocks pay strong dividends and have long histories of raising their payouts.

Regional Bank Stock #1

U.S. Bancorp USB traces its lineage back to 1863 when the First National Bank of Cincinnati opened for business. It has since grown to 70,000 employees, a $63 billion market capitalization, and about $28 billion in annual revenue. It competes mostly in traditional banking activities, but also offers wealth management, payment, and investment services.

U.S. Bancorp posted first-quarter earnings on April 17, and results were marginally better than expectations on both the top and bottom lines. Adjusted earnings per share came to 90 cents, which was three cents better than expected. Revenue was off 6.4% year over year to $6.72 billion, beating estimates by $10 million. Noninterest income was up 7.7% year over year, but was off 1.4% from Q4.

For the second quarter, the bank expects net interest income to be flat to Q1 results. For the year, net interest income is expected to be between $16.1 billion to $16.4 billion. Following 2023 results that produced much lower earnings for U.S. Bancorp, we have a higher expected growth rate. We expect growth of 9% annually.

U.S. Bancorp’s payout ratio is in line with its peers, and we expect growth in the payout to continue, growing to $2.38 in five years. That would keep the payout ratio below 50% of earnings and in line with the bank’s capital return strategy, affording it the opportunity to continue to buy back shares and make acquisitions.

U.S. Bancorp’s competitive advantage is in its stellar operating history and world-class management team. It operates as a regional bank, but on a massive scale, and as a result, it has been stronger through recessions than its larger peers.

USB stock currently yields 4.8%.

Regional Bank Stock #2

PNC Financial Services PNC is headquartered in Pittsburgh, Pennsylvania, and it is one of the largest diversified financial services companies in the U.S. It is engaged in retail banking as well as corporate and institutional banking and asset management. Its retail network is located primarily in markets across the Mid-Atlantic, Midwest and Southeast.

In mid-April, PNC reported financial results for the first quarter of 2024. Net interest income dipped 4% sequentially due to higher funding costs. Net interest margin shrank from 2.66% to 2.57% and non-interest income fell 4% due to lower stock market levels.

However, non-interest expense declined 18% while the bank reduced its loan loss provisions from $232 million to $155 million thanks to improved economic activity. As a result, EPS rose 6% sequentially, from $3.16 to $3.36, and exceeded the analysts’ consensus by $0.28. PNC has exceeded the analysts’ EOS estimates in 13 of the last 15 quarters.

PNC has consistently pursued growth by expanding into attractive markets, growing its loan base organically and acquiring other banks. The acquisition of BBVA USA is likely to be a significant growth driver in the short run while we also expect a tailwind from an increase in the loan/deposit ratio of the bank and a tailwind from a lower cost of deposits in the upcoming years.

PNC has grown its EPS at a 7.6% average annual rate in the last decade and at a 5.7% average annual rate in the last five years. We expect the bank to grow its EPS at a 6.0% average annual rate over the next five years.

PNC raised its dividend by 3% last year and has now raised its dividend for 13 consecutive years. It froze its dividend for eight consecutive quarters due to the pandemic, but it has resumed raising its dividend thanks to its ongoing recovery. Thanks to a healthy payout ratio of 50%, the dividend should be considered safe.

PNC stock currently yields 3.9%.

Regional Bank Stock #3

KeyCorp KEY has been in business for over 170 years and is now one of the nation’s largest bank-based financial services companies with $187 billion in assets. The company operates in 15 states with approximately 1,300 ATMs and 1,000 full-service branches. KeyCorp works in personal, small business, commercial, and corporate banking along with wealth management.

In mid-April, KeyCorp reported financial results for the first quarter of 2024. Non-interest income grew 6% thanks to record first-quarter performance of investment banking. However, deposits edged down 0.2% sequentially, net interest margin slipped from 2.07% to 2.02%, and loans decreased 2.6%. As a result, adjusted EPS decreased 12%, from $0.25 to $0.22, and missed the analysts’ consensus by $0.01.

The bank expects its net interest income to decline 2%-5% this year due to rising costs of deposits but it expects its non-interest income to bounce at least 5%, as capital markets activity is expected to normalize. We still expect KeyCorp to begin to recover this year from the adverse business conditions that prevailed last year.

KeyCorp has opportunities in the years ahead thanks to general economic growth. KeyCorp is geographically diverse, operating from Maine to Alaska, but in just 15 states total. We expect net interest margin and non-interest income to recover in the upcoming years and we expect 10.0% average annual growth of earnings-per-share over the next five years off this year’s low comparison base.

KEY has a dividend payout ratio of approximately 71% for 2024, which is on the high side but the payout remains covered. KEY has increased its dividend for 12 consecutive years.

KEY shares currently yield 5.4%.

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At the time of publication, Ciura had no positions in any stocks mentioned.