When investors think of Financials Stocks, immediately banks come to mind. While banks make up a large portion of Financials Stocks, there are other companies within the S&P 500 Financials Sector that are not in the business of lending money but serve more like technology companies.
There are also Insurance companies that protect our assets from risk of harm. Banks serve as the life blood of today’s economy and without them, money would not flow and life would come to a standstill.
We have broken down Financials Stocks in 3 main categories below. They are:
1) Banks – Banks are institutions that take deposits from consumers, and lend to borrowers to buy single family homes, multi-family buildings or lend to small or medium sized businesses to move the economy forward. They primarily earn money from the spread between the interest paid on deposits versus interest charged on mortgages and loans. Think of institutions like JP Morgan Chase, Bank of America, Wells Fargo, Citigroup, PNC and First Republic Bank.
2) Insurance – Insurance companies form the 2nd largest group within Financials Stocks. Insurance companies protect peoples’ assets such as houses, cars, boats and buildings from harm and they also provide life and health insurance. In exchange for small monthly premiums, Insurance companies protect clients from uncertain harmful events that can cause monetary or life threatening damage. Think of companies like State Farm, Progressive Group, Liberty Mutual, AllState, Berkshire Hathaway among others.
3) Financial Services – Financial Services companies perform various value-added services within Financials Sector. An example is companies like Nasdaq or Intercontinental Exchange that operates the New York Stock Exchange and provides investment trading, clearance and credit assurance services. Another example is BlackRock Group that operates iShares and asset management services for pension funds, sovereign wealth funds, government agencies and insurance companies. Another example is Goldman Sachs that provides investment banking and advisory services to institutional and high net worth clients.
In this article, we review the top 10 dividend stocks in the S&P 500 Financials Sector (XLF) ETF. These stocks are determined using criteria such as dividend yields and dividend growth, cumulative average revenue growth over the last 5 years (CAGR), operating cash flows, price to earnings and price to sales ratio, etc. The fundamentals of the underlying business also matter significantly, as well as where is future growth opportunities.
This article also provides an Excel Spreadsheet of all 65 Stocks in the XLF Industrials ETF with useful metrics including:
- Market Capitalization
- 2019 Revenues
- Forward Price to Earnings (PE) Ratio
- Dividend Yield
- Dividend Payout Ratio
- 5 Year Revenue Growth
- 5 Year Earnings Growth
- 5 Year Dividend Growth
- Price to Sales Ratio
- Return on Equity (%)
- % of Institutional Shareholders
What Sectors Comprise of the S&P 500 Financials (XLF) ETF?
There are 5 categories of companies within the S&P 500 Financials Sector, listed below by weighting. Please note that Mortgage Real Estate Investment Trusts (REITs) are no longer included in the S&P 500 Financials as they moved to their own Exchange Traded Fund under the symbol XLRE.
- Banks – 34.37%
- Capital Markets – 26.46%
- Insurance – 18.68%
- Diversified Financial Services – 15.66%
- Consumer Finance – 4.83%
Performance of XLF Versus S&P 500
In the last decade, XLF has gained 189% slightly underperforming the broader market S&P 500 that has advanced by 204%. It makes sense that the Financials as a whole would underperform because banks have gone through some tough times including record losses stemming from the global financial crisis of 2008.
How to Use Excel Spreadsheet of Financial Stocks
Click here to download a Microsoft Excel Spreadsheet containing list of all stocks in the S&P 500 Financials ETF. Below are instructions on how to screen the worksheet to find investment ideas.
Screen #1: Highest Dividend Yield Stocks in S&P 500 Financials (XLF)
Step #1: Open file after downloading.
Step #2: Click anywhere on Row 1, hit the “Data” tab and click “Sort.” Enter these parameters.
Sort By: Dividend Yield, Sort On: Values and Order: Largest to Smallest
Attached is a screenshot of the Excel file displaying the results of this screen.
Screen #2: Largest Market Capitalization Stocks
Step #1: Click anywhere on Row 1, hit the “Data” tab and click “Sort.” Enter these parameters.
Sort By: Market Capitalization, Sort On: Values and Order: Largest to Smallest
Attached is a screenshot of the Excel file displaying the results of this screen.
Screen #3: Stocks with the Lowest Price to Earnings (PE) Ratio
Step #1: Click anywhere on Row 1, hit the “Data” tab and click “Sort.” Enter these parameters.
Sort By: Forward PE Ratio, Sort On: Values and Order: Smallest to Largest
Attached is a screenshot of the Excel file displaying the results of this screen.
Without further due, let’s present the top 10 Financials Stocks in the S&P 500 that we like. They are:
- BlackRock (BLK)
- JP Morgan Chase (JPM)
- Morgan Stanley (MS)
- Progressive Corporation (PGR)
- S&P Global (SPGI)
- First Republic Bank (FRC)
- Intercontinental Exchange (ICE)
- Bank of America (BAC)
- MSCI Inc.
- Nasdaq OMC Group (NDAQ)
1) BlackRock Inc. (BLK)
BlackRock Inc. is a global investment management firm with $7.43 trillion in assets under management, employing 16,200 employees in 30 countries with clients from over 100 countries. The firm generated $14.539 billion in revenues in 2019 and earned a net income of $4.476 billion, which implies an impressive 31% net profit margin.
BlackRock serves institutional and retail clients such as defined benefit and contribution plans, charitable foundations and endowments, central banks, sovereign wealth funds, other banks and insurance companies, etc. BlackRock also serves retail clients who can easily purchase its iShares products through any discount brokerage or banking institution.
BlackRock Stock sports a $110.7 billion market capitalization and pays a 2% dividend yield. This yield is 40 basis points better than the yield paid by S&P 500 companies at 1.6%. We also like the firm’s 5 year annualized dividend growth rate of 10.75%, which rewards long term income investors with increasing dividends each year.
Over the last 10 years, BlackRock has grown revenues from $9.08 billion in 2011 to $14.54 billion in 2019. This represents a compounded annual growth rate (CAGR) of 4.8%. We also like the fact that management has grown assets under management from $4.65 trillion in 2015 to $7.43 trillion in 2019, a 10% CAGR over a 5 year period.
We like Blackrock’s strong financial management. In 2019, management spent $1.9 billion in share repurchases, $2.1 billion in dividend payments and $1.3 billion to acquire France based alternative investments software and solutions provider called eFront. This software will be used to management BlackRock’s fast growing $135 billion in alternative assets under management.
The company has a competitive moat around its business that no start up can easily duplicate. It has relationships with some of the world’s largest financial institutions. As an example, BlackRock is the world’s largest manager of pension plan assets managing $2.6 trillion for pension funds, $235 billion for central banks and $380 billion for insurance companies.
BlackRock also owns iShares ETFs with $2.2 trillion in assets under management. It was the top growing ETF company in 2019 with organic growth of 11% or net inflows of $183.5 billion.
Investors are rewarding this durable moat with BlackRock Stock commanding a high forward price to earnings (PE) ratio. It currently stands at 23 times 2020 earnings which is quite high for a financial institution. BlackRock’s consistent profitability is also to be liked. The chart below from its 3rd Quarter, 2020 earnings release shows net income dropping to $975 million in Q4 2018 thanks to a 20% drop in the S&P 500. However, markets rebounded to new highs by Q4 2019 and net income rose to $1.3 billion.
Source: BlackRock Q3 Earnings Slides
Q1 2020 was a tough quarter for BlackRock with the S&P 500 dropping about 35% from peak to trough due to fears of economic lockdown due to Corona Virus. Consequently, the company’s net income dropped from $1.3 billion in Q4 2019 to $1.03 billion in Q1, 2020. As we all know, by Q3 2020, the US stock markets were making new all time highs and BlackRock’s net income grew even stronger, at $1.41 billion.
2) JP Morgan Chase (JPM)
JP Morgan Chase is in our Top 10 Financial Stocks picks having crushed the performance of the broader market S&P 500 over the last decade, paying a 2.9% dividend yield, and growing its dividend at compounded annual growth rate (CAGR) of 16.5% over the last 5 years, as well as rated as #1 Consumer and Credit Card Bank in America in 2019.
JP Morgan is recognized as one of the most admired US Corporations in the world, and almost 100 million people in the US own JPM Stock either through an ETF, Mutual Fund, Pension Plan or Employer Sponsored plan.
JP Morgan Chase is a global financial services firm with $2.7 trillion in assets serving over 63 million households in America and 4 million small businesses. It is ranked as #1 Consumer, Credit Card and Multi-Family lender in America for the year 2019.
The bank generated $118.7 billion in revenues in 2019 and earned a net income of $36.4 billion. This works out to a 31% net profit margin which is very impressive. JP Morgan Chase does business in 4 segments. They are:
- Consumer & Community Banking – Serves 63 million customers in US and 4 million small businesses through 4,976 Chase branded branches. This segment generated $55.9 billion in revenues in 2019 and earned a net income of $16.6 billion, delivering a 31% return on equity. Average deposits grew 3% to $694 billion and client investment assets grew to $358 billion, up 27% from 2018. Consumer & Community Banking is #1 in US Credit Card Sales by volumes and has 37 million active mobile banking users.
- Corporate & Investment Banking (CIB) – Generated $38.3 billion in revenues and earned a net income of $11.9 billion. CIB is ranked as #1 in Investment Banking Fees and in Debt Markets as well as holding $27 trillion in assets under custody and ranking #1 in US dollar payments volumes. In 2019, CIB raised $530 billion for clients in various equity and bond markets and did 79 Initial Public Offerings (IPOs). The firm’s trading unit also buys and sells $46 billion worth of stocks every single day, which account for majority of trading revenues.
- Commercial Banking – Generated $9 billion in revenues and $3.9 billion in profits. Ended 2019 with $54 billion in loans to small businesses, schools and non-profits, states and municipalities, etc. JP Morgan is also rated as #1 multi-family lender in America.
- Asset & Wealth Management – Holds over $3.2 trillion in client assets employing almost 2900 wealth advisors to serve high net worth clients as well as retail investors. JP Morgan serves over 59% of the world’s largest pension funds, sovereign wealth funds and other central banks.
Source: JP Morgan 2019 Annual Report
Chart shows how JPM has grown Earnings per Share, Net Income and Return on Tangible Common Equity (ROTCE) since 2004. We like how JPM has grown net income from just $4.5 billion in 2004 to a whopping $36.4 billion in 2019. Return on Tangible Common Equity (ROTCE) has also grown from 10% in 2004 to 19% in 2019.
ROTCE means the net income divided by the company’s tangible assets and common equity (excluding preferred shares). Preferred shares are excluded because during the Great Financial Crisis of 2008, US banks issued preferred shares to the US Government in return for bailout money. More information can be found on this article from Investopedia.
JP Morgan also fares better when compared to competitors by looking at its Overhead ratio of 55%. The next best competitor is Citigroup with 57%, Bank of America at 60%, Goldman Sachs at 68% and Wells Fargo and 68%.
3) Morgan Stanley (MS)
Morgan Stanley is an investment bank that acts as an adviser, underwriter or distributor of capital and earns revenues by underwriting equity and fixed income offerings, loan syndications or through mergers and acquisitions. The firm also has a trading segment that buys and sells stocks and bonds and earns profits. For fiscal 2019, Morgan Stanley generated $41.42 billion in revenues and earned a net income of $9.04 billion. This translates to an almost 22% net profit margin. Morgan Stanley does business in 3 segments. They are:
- Institutional Securities – Generated $20.4 billion in 2019 revenues and earned a net income of $4.6 billion. This segment helps corporations, schools, municipalities and other institutions raise capital through equity and bond offerings and provides advice on mergers and acquisitions, real estate financing, restructurings, etc. In 2019, Institutional Securities completed $818 billion in mergers and acquisitions and $270 billion in fixed income offerings, expressed as “banking volumes.”
- Wealth Management – This segment holds $2.7 trillion in client assets and employs almost 15,500 agents and representatives. It earns trading fees based on transactional volumes and charges a management expense ratio (MER) on client assets invested in stocks, bonds and alternative investments. It generated $17.74 billion in revenues in 2019 and earned a net income of $3.72 billion.
- Investment Management – Offers asset management services for institutions including defined benefit and contribution pension plans, charitable foundations and endowments, sovereign wealth funds, central banks, insurance companies and other third party sponsors. Total assets under management as of 2019 stands at $552 billion.
Morgan Stanley sports a $124 billion market capitalization and pays a 2% dividend yield. This yield is 40 basis points higher than the average yield paid by S&P 500 companies of 1.6%. We also like the fact that Morgan Stanley has grown its dividend at a compounded annual growth rate (CAGR) of 20% over the last 5 years.
We like owning Morgan Stanley Stock for the long term because of management’s efforts to transform the business from a majority (74%) of revenues coming from volatile equity and bond offerings to 50% wealth management, which is more “durable”. The company has bought back over 400 million shares from 2014 to 2019 and increased its earnings per share from $2.13 to $4.98 during this 5 year period.
4) Progressive Corporation (PGR)
Progressive Corporation is an insurance holding company providing personal and commercial auto insurance, residential and commercial property insurance, general liability and property casualty insurance. Founded in 1937, Progressive Corp. is one of the largest auto insurance providers in the US. The company sports a $57 billion market capitalization and pays a 0.4% dividend yield. Although this yield sounds low, it has grown at an annualized rate of 30% over the last 5 years.
PGR Stock has tripled the performance of the broader market S&P 500 over the last 10 years. In the last decade while the S&P 500 has risen 194%, Progressive Corp. has advanced by 582%. This out performance is by a factor of 3, which is a superb performance! The company generated $39 billion in revenues in 2019 and earned a net income of $3.97 billion. This works out to a 10% net profit margin. The company does business in 3 segments. They are:
- Personal Lines – Generated $30.21 billion in premiums in 2019 and is the 3rd largest auto insurance provider in US. Insurance premiums are generated by more than 35,000 independent agents spread across 50 States. What makes Progressive Corp. better than its competitors is 24 hour claims service, excellent customer service via mobile, in-store as well as a good line of products that fit every customer’s needs.
- Commercial Lines – Provides property insurance, general liability and insurance for commercial vehicles against physical damage. It generated $4.42 billion in premiums in 2019 and competes with approximately 330 commercial insurance providers across America. Examples include tow trucks, contractor vans, pick-up trucks and automobiles used by small businesses, etc.
- Property –
Progressive Corporation has grown revenues from a modest $15.76 billion in 2011 to 39 billion in 2019. This represents a compounded annual growth rate (CAGR) of 9.5%, which is a spectacular long term performance. Thanks to a new CEO appointed in July 2016, the company grew its earned premiums from $20.6 billion in 2015 to $37.6 billion in 2019. In terms of year over year growth, earned premiums grew 14% in 2016, 16% in 2017, 20% in 2018 and 15% in 2019.
Management has grown its insurance policies in force from 15.39 million in 2015 to 22.36 million as of 2019. This represents a healthy 7.8% compounded annual growth rate (CAGR). We expect management continue this growth well in to the future and like owning the stock at these levels.
Progressive Corporation has grown its share of US auto insurance market from 9% in 2015 to 11.1% in 2019. The company also generates consistent profits year after year and trades at just 13 times forward earnings (as measured by forward Price to Earnings) ratio. PGR Stock is most likely undervalued and will continue to out perform the S&P 500.
We like management’s approach to using artificial intelligence in the Insurance industry. As an example, in 2018, Progressive Corp. launched Snapshot, a mobile based algorithm to improve accuracy of how driving data is used to calculate insurance rates. With this program, the company onboarded over a million new insurance policies and those drivers with older vehicles. This is just another way to the company is growing.
5) S&P Global (SPGI)
S&P Global is the world’s leader in providing transparent and independent data to global capital and commodities markets . The purpose of the firm is to provide intelligence such that its customers can make smart and informed investment decisions. Examples of customers include investment banks, asset management firms, insurance companies as well as energy, petrochemical and agriculture companies. The firm does business in 4 segments. They are:
- Ratings – Achieved $3.1 billion in revenues in 2019. The ratings business provides a credit risk opinion to companies across 27 countries and rated more than $3.7 trillion in new debt in 2019. It analyzes the ability of a debt issuer to meet its financial obligations as they come due.
- Market Intelligence – Generated $1.96 billion in revenues for 2019. Provides actionable intelligence on global financial markets and companies. Institutions use this product to assess risk, research investment opportunities, perform valuations and assess performance.
- Global Patts – Achieved $844 million in revenues for 2019. Provides analytical information and benchmark prices for oil and natural gas, petrochemicals, metals and agriculture. Customers who subscribe to this product are able to make better informed decisions when purchasing commodities.
- Dow Jones Indices – Generated $918 million in revenues for 2019. Provides indexing solutions and earns revenues based on licensing fees for S&P Dow Jones Indices, OTC derivatives and structured products, etc.
We like SPGI Stock because it has crushed the performance of the broader market S&P 500 over the last 10 years. In fact, while the S&P has gained 198% in the last 10 years, S&P Global has advanced by 995%. That’s a 5 times out performance! The company is also a cash generating machine having paid $5.4 billion to shareholders from 2017 to 2019 including $3.9 billion in share repurchases and $1.5 billion in dividends.
S&P Global sports a $79 billion market capitalization and pays a 0.8% dividend yield. This yield below 1% is quite low, however it has grown at a compounded annual growth rate (CAGR) of 15% over the last 5 years. We expect the dividend to grow over the years. Management is rewarding shareholders more in the form of share repurchases versus dividends. SPGI owners have been rewarded with huge stock price appreciation in the last decade (see paragraph above).
In 2019, S&P Global generated revenues of $6.69 billion and earned a net income of $2.3 billion. This translates to almost 35% net profit margin which is really impressive! The company is also a member of S&P 500 dividend aristocrats, having grown its dividend for 47 consecutive years.
We like SPGI Stock for the long term because since 1860, the company has built relationships with its customers that cannot be easily duplicated by a new entrant. As an example, the company’s commodity price assessments provide intelligence and transparency to airlines, steel companies and utilities that purchase commodities on a daily basis.
SPGI’s credit ratings help unlock capital to support governments build infrastructure and corporations fund explansion plans. The company’s indices, such as the S&P 500 help pension funds and other money management companies to benchmark their performance and allocate capital.
For 2020, S&P Global expects to generate $10.60 in adjusted earnings per share, a 9% growth year over year from 2019. We like this stock because of management’s ambitions to grow the business. In March 2018, the company acquired Kensho Technologies, an artificial intelligence start-up that uses sophisticated algorithms and machine learning abilities that is well liked by major Wall Street firms. Kensho hopes to solve some of the most complex analytical problems in the world.
In December 2020, management also announced S&P Global will be merging with IHS Markit valuing IHS Markit at a transactional value of $44 billion. This happens to be the most expensive acquisition in this history of capital markets. The combined company is expected to bring in annual pro-forma revenues of $11.6 billion and over $5 billion in annual free cash flows.
The merger also hopes to bring cost synergies up to $390 million and improve bottom line margins. IHS Markit is a leading provider of information analytics to over 50,000 customers providing deep insights and ways to improve operational efficiencies. This merger is like a marriage made in heaven!
6) First Republic Bank (FRC)
Here is a stock that you will not typically see on financial news media like CNBC or Bloomberg but has consistently crushed the performance of the S&P 500. First Republic Bank (FRC) provides retail and business banking services and wealth management to private customers primarily in top tier cities in America including San Francisco, New York, Los Angeles and Boston. It generated $930 million in net income for 2019, a 9% year over year growth. The bank has $116.3 billion in assets, $90 billion in deposits and assets in its wealth management division of $151 billion.
First Republic Bank sports a $28 billion market capitalization and pays a 0.5% dividend yield. Management has raised dividends for 9 consecutive years making this a top pick for dividend growth investors. FRC Stock has advanced by 494% over the last 10 years, crushing the performance of the broader market S&P 500 that has risen by 202% and S&P Financials Select Sector (XLF) that has advanced by 189%.
We like First Republic Bank because of its consistent profitability over the last 35 years, simple and focused business model, very low non-performing assets and a strong credit culture. As an example, 81% of the bank’s loans are backed by real estate and have an average loan to value ratio of 58%. This means borrowers put a down payment of at least 40%, which means they simply cannot walk away from their homes and have “skin in the game.” Its borrowers also have high net worth and plenty of liquidity with an average credit score of 776.
Chart below shows a history of the bank’s net interest margin since 2002. Net Interest Margin is the spread between the interest a bank charges on its loans and mortgages versus the interest it pays to holders of saving accounts. First Republic Bank has maintained a stable net interest margin of about 3% since 2002. As of September 2020, net interest margin has dropped to 2.72% thanks to the Federal Reserve lowering the Fed Funds rate to 0%.
Even more impressive is First Republic Bank’s growth of enterprise value from its initial capital injection of $8.8 million in 1986 to $22 billion as of 2019. This translates to a compounded annual growth rate (CAGR) of 35% over 35 years, a performance that even investing legends like Warren Buffet and Berkshire Hathaway will find hard to beat.
From 2007 to 2019, 50% of the bank’s growth is attributed to existing customers. The bank believes in providing superior service to its clients such that they get word of mouth referrals. According to the bank’s Investor Factsheet, client satisfaction for First Republic Bank is 2 times higher than the average banking industry in the United States.]
We also like the bank’s strong growth to the tune of 22% CAGR in its Private Wealth Management business. Client assets under management have grown from $53.4 billion in 2014 to $168.2 billion as of September 2020. As a result, wealth management fees have grown from $192.3 million to 375.1 million during this same time period.
7) Intercontinental Exchange (ICE)
Intercontinental Exchange (ICE) is in our Top 10 Financial Stock picks having crushed the performance of the broader market S&P 500 over the last 10 years, grown adjusted earnings per share for 14 consecutive years, achieved record revenues in 2019 as well as a market dominating position running regulated exchanges and clearing houses globally. Founded in 2000, Intercontinental Exchange does business in 2 segments. They are:
- Trading and Clearing – This unit provides trade execution, clearing and risk management services to clients across various asset classes including commodities, credit default swaps, interest rates, foreign exchange, bonds and mortgage products. It operates 12 regulated exchanges and 6 clearing houses. It generated $2.54 billion in revenues in 2019 with energy futures and options raking in $992 million, agriculture and metals at $251 million, financials futures at $332 million, fixed income and cash futures bringing in $662 million.
- Data and Listings – Generated $2.7 billion in revenues in 2019. This division provides exchange data analytics and feeds, corporate and ETF listing services on its cash equity exchanges, pricing and reference data for global financial and commodity markets.
Intercontinental Exchange (ICE) sports a $66 billion market capitalization and pays a 1% dividend yield. Although this sounds low, management has grown its dividend at an impressive 16% CAGR over the last 5 years. What’s more, ICE Stock has rewarded shareholders with huge capital gains over the last decade. In fact while the S&P 500 has risen 204% over 10 years, Intercontinental Exchange Stock has doubled this performance having advanced by 441%.
Why would clients pick ICE as their trades clearing agent? Intercontinental Exchange clearing houses’ provide credit assurance to substantially reduce counterparty risk and promote liquidity and security of financial transactions. They are subject to strong regulation, governance and rules protecting each party in a futures transaction. Also, ICE’s exchanges are located around the world providing connectivity to over 150 trading venues and data from 750 sources. This makes services of Intercontinental Exchange essential around the world.
We like ICE Stock because the underlying business has high operating margins of 64% versus its peer group that has 61%. Clearing and trading revenues are also diversified across various revenue mixes including fixed income and credit, Brent crude oil, Agriculture and Metals, Interest Rates, Equity Indexes, Gas, Power and Emissions, etc. The screenshot below from ICE’s Interview Overview shows a breakdown of revenue mix by each product line.
We like management’s commitment to return 100% of free cash flow to shareholders in the form of dividends and share repurchases, net of mergers and acquisitions. Capital return to shareholders amounted to $2.08 billion in 2019, comprising of $1.46 billion in share repurchases and $621 million in dividends. This has grown from just $693 million in total capital return in 2008, translating to compounded annual growth rate (CAGR) of almost 10%.
The market is assigning ICE Stock a high valuation multiple of 26 times forward price to earnings. As a comparison, the S&P 500 is trading at 22 times forward earnings and S&P Financials ETF (XLF) is trading at 18.8.
Intercontinental Exchange has all the signs of a successful company. Not only does it have high operating margins of 64%, it also has a competitive moat around its business that new entrants will find it almost impossible to duplicate. The firm also has 51% of revenues which are recurring in nature.
Management is rewarding shareholders with twice the amount of share repurchases versus dividend payments, which leads to an increase in share price over the long term. We like owning Intercontinental Exchange Stock on any market pullbacks in 2021.
8) Bank of America (BAC)
Bank of America’s mission is to help individuals navigate every aspect of their financial lives including helping finance companies, large and small to grow and drive the economy forward. Through its 8 lines of business, the bank also strives to provide award winning research for institutional investors. Employing 208,000 people, Bank of America has $2.7 trillion in assets and its retail branches cover approximately 90% of the US population.
With 4,300 retail branches, the bank serves 66 million consumers and small business clients, has 16,800 ATM machines and 38 million online active users that use its mobile banking apps. BAC achieved $91.24 billion in revenues in 2019 and earned a net income of $27.43 billion, translating to an impressive net profit margin of 30%. BAC has achieved several distinctions including rated #1 in consumer deposits market share, #1 small business lender, best mortgage lender for first time home buyers and top online stock broker.
Bank of America sports a $282 billion market capitalization and pays a 2.2% dividend yield. This yield is 70 basis points higher than the yield paid by S&P 500 companies at 1.5%. We like the fact that BAC has grown its dividend at a compounded annual growth rate (CAGR) of 29% over the last 5 years. Over the last 10 years, BAC Stock has advanced by 178% lagging the performance of the broader market S&P 500 companies that have gone up by 204%.
The stock market is still wary of Bank of America’s failed acquisitions including acquiring credit card issuer MBNA in 2005 which subsequently led to over $70 billion write off in bad credit card loans and goodwill impairment charges. The bank further compounded its problems by acquiring Countrywide Financial in 2008. Countrywide Financial’s risky mortgage underwriting subsequently led to Bank of America losing over $50 billion.
Looking forward, it is hard to express an opinion whether management will repeat these mistakes, or Bank of America will turn to a conservative lender that minimizes and controls risky lending. Investors will be pleased to learn that legendary investor Warren Buffett and his firm Berkshire Hathaway own almost 12% of all outstanding BAC Stock worth $33.6 billion at the time of this writing.
Warren Buffett is behind Bank of America’s stock ever since he made a $5 billion investment in the company in August 2011. At the time of investment, BAC CEO Brian Moynihan said the bank has enough capital and liquidity to survive and thrive. However, an investment from Warren Buffett will serve as a strong endorsement to the company’s vision and strategy.