U.S. banks reported not long ago, with some boosting dividends and buying back shares in response to their success in clearing this year’s stress tests by the Federal Reserve. This was generally well received by the market and perhaps aided in the July rally. As a result, my team member Allan Meyer and I thought we would take a closer look at U.S. banks using our investment philosophy based on safety and value. This sector often fits well with many of the qualities we admire when investing.
Dividend yield is the annualized projected dividend divided by the recent share price. Dividends can reflect safer and steadier earnings profiles. Debt-to-equity is our final safety measure: It is the total debt outstanding divided by shareholders’ equity. A smaller number is desired. As we like to say, it’s difficult to declare bankruptcy if you have little to no debt obligations.
Price-to-earnings is the recent share price divided by the projected earnings per share. It is a valuation metric – the lower the number, the better the value. Earnings momentum is the quarter-over-quarter change in annualized earnings, a predictor of potential earnings growth and dividend hikes over the long term . Price-to-book compares the recent share price to the book or equity value per share. This is another valuation metric, and a lower number is preferred.
We’ve also calculated the average and median for all metrics to allow for better comparability and provided the 52-week total return to track performance.
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