Beat Treasury yields with dividend-paying bank stocks, Janney says

Investors hoping to capture solid yield and upside capital gain potential may want to turn to regional banks — some of which offer dividend yields that top 4%, according to investment bank Janney Montgomery Scott. The Federal Reserve is expected to deliver an interest rate cut at the end of its Sept. 17-18 policy meeting this month. That means investors who’ve been collecting hefty yields from short-term Treasurys, high yield savings accounts and money market funds are likely to see their interest income come down. In fact, financial institutions are already dialing back the interest they pay on certificates of deposit: Sallie Mae trimmed the rates on its 1-year and 2-year CDs by 15 basis points each, bringing the annual percentage yield on these instruments to 4.8% and 4.05%, respectively, Wells Fargo found. A team of analysts at Janney, led by Timothy Coffey, turned up a list of regional bank stocks with dividend yields that outpace those on most Treasury notes. To put things into perspective, the 3-year Treasury is yielding about 3.75%. “Perhaps unsurprisingly, Banks in this group have been regular dividend payers for years,” Coffey wrote in a note last week. “And, despite the pressure on Net Interest Margin from slower loan demand and faster increases in funding costs, many have increased dividends year-over-year since 2021.” Net interest margin measures the difference between the interest income a bank generates from loans and what it pays out to savers. Investors should be aware that banks – like any dividend-paying company – can always dial back these payments to shareholders if their finances come under strain. What’s more, high dividend yields can signal that a company’s share price is tumbling. Here are the bank stocks that Janney highlighted in its report. Regions Financial made the grade. The stock is up nearly 20% in 2024, and sports a dividend yield of 4.3%. Wall Street is largely on the fence about the Birmingham, Ala. bank, with 16 of 27 analysts covering the name rating it a hold, according to LSEG. Analysts from Piper Sandler recently met management at Regions, noting that “While the macro backdrop reflects a slowing economy and customers remain cautious, management is confident in RF’s ability to navigate the uncertainty.” Executives at Regions also pointed out an “improving [net interest income] trajectory and good fee story,” wrote Piper analyst R. Scott Siefers. He has a neutral rating on Regions and a price target of $23, suggesting a nearly 2% decline from where shares ended on Friday. Regions raised its quarterly dividend by more than 4% in mid-July. KeyCorp is also on Janney’s list. Shares of the Cleveland-based regional bank are up nearly 17% this year, and the stock offers a dividend yield of 4.9%. The Street has a generally favorable view on KeyCorp, with roughly 60% of analysts rating KeyCorp a buy or strong buy, according to LSEG. Last month, the Bank of Nova Scotia agreed to make a strategic minority investment in KeyCorp of about $2.8 billion for a roughly 14.9% ownership stake. The initial tranche of that investment was completed on Friday, with the Canadian bank buying $800 million of KeyCorp common stock. “This is a great deal for KEY as it checks a number of boxes,” said D.A. Davidson analyst Peter Winter in an Aug. 12 report. He noted that the deal is accretive to earnings by low single digits in 2025. Winter added that KeyCorp will use about half of the investment to reposition its securities portfolio and pull forward earnings, which would drive about $400 million of additional net interest income in the first year. Other names that made Janney’s list of dividend-paying regional bank names include Huntington Bancshares , which is up 16% in 2024 and pays a dividend yield of 4.2%, and Truist Financial , up some 20% this year and offering a dividend yield of 4.7%.