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Investing in Banks is Boring But Sexy

This article was written by in Banking, Investing. 3 comments.

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 October 14, 2016 and originally published May 19, 2006.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 3 comments… read them below or add one }

avatar 1 Anonymous

Do you know of any funds that invest in banking?

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avatar 2 Luke Landes

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%.

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avatar 3 Anonymous

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.

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