Fortune Magazine is happy about bank stocks, and it comes down to dividends. The dividends bank stocks pay to their shareholders beat the averages and increase every year, far above the rate of inflation. Presumably banks can offer this because they don’t necessarily need to reinvest earnings in much research and development, like a technology company might.
With increasing dividends and increasing earnings per share, you’re going to be looking at more than a 15% return after seven years. (The details are in the Fortune article.)
The article thankfully also mentions the risks of investing in these stocks, but the author quickly doubles back and writes the chance of single-digit returns is unlikely. The author predicts more acquisitions. Major banks like Citigroup (C), Wachovia (WB), Bank of America (BAC), J.P. Morgan Chase (JPM), and Wells Fargo (WFC) may look to buy regional banks strong in certain locations, SunTrust (STI) and PNC (PNC).
Updated February 7, 2012 and originally published May 19, 2006. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.
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Do you know of any funds that invest in banking?
Check out VFAIX (it’s a Vanguard Admiral Shares fund, so you have to have a huge initial investment) or its complementary ETF: VFH.
There are probably may non-index financial funds, but then you’ve got higher management fees. VFAIX’s management fee is 0.28%.
I was just thinking about this last week. There seems to be alot of consolidation with bigger banks buying the smaller ones. I would bet the large banks with alot of fees would be pretty profitable as most people just choose a bank near them and don’t do alot of research on fees and rates.