3 Reasons to Buy This Stock Warren Buffett Loves

U.S. Bancorp has a number of great things going for it, and it loves to return its money to shareholders. Maybe that's why Warren Buffett likes the bank so much.

Mar 3, 2014 at 5:04PM

Banks are often considered scary investments, but there is one bank with a great dividend that even Warren Buffett loves.

Although U.S. Bancorp is headquartered in Minneapolis -- far from the U.S.'s banking center in New York City -- it's one of the best-performing banks in the country. Like many other banks, USB has been challenged by the recent banking environment. But thanks to its conservative management and the outperformance it showed during the 2008-2009 meltdown, its clearly a bank investors can own and still sleep well at night.

Below are three reasons I believe USB is a good buy today.

1. Remarkable returns
While other banks may have seen more impressive growth in earnings -- Bank of America's net income nearly tripled last year, going from $4.2 billion in 2012 to $11.4 billion in 2013 -- this was more the result of poor prior performance for those banks, as opposed to U.S. Bancorp falling behind on "real" growth.

In a comparison against some of its peers, including Wells Fargo, PNC, and Citigroup, U.S. Bancorp delivered stunningly profitable results. Its return on assets and equity far outpaced its peers, and its efficiency ratio -- which measures the cost of each dollar of revenue -- was also best in class:

Images
Source: Company Investor Relations.

As a result, it should come as no surprise U.S. Bancorp's price-to-tangible book value -- the key metric used by investors to gauge a bank's value -- is also at the top of its peers as well.

Images

Source: YCharts.

While a high valuation can be concerning, it's considerably less so when you consider that USB delivered a staggering 23% return on average tangible common equity in 2013 -- nearly double the 12.6% average of nine of its peers. These great returns give a pretty good clue as to why Warren Buffett owns $3.2 billion of U.S. Bancorp through Berkshire Hathaway.

2. Strong growth
The bank has grown its deposits by 50%, or $82 billion since 2009, and its loans are also up to the tune of $41 billion over the same time period. Above I mentioned the conservative management at USB and its performance during the financial meltdown years -- this is exactly why depositors feel safe bringing their money to the bank. And it's on the back of low-cost, stable deposits that long-term banking success is built.

In addition, the company has steadily gained market share from other banks across its business operations. One example is that in first quarter of 2007, it issued just 0.7% of the total mortgages in the U.S., but by the third quarter of 2013, that stood at 4.1%, representing remarkable growth.

3. Generosity toward shareholders
U.S. Bancorp is capable of delivering remarkable returns to its bottom line, but what makes it even better is it has every intention of distributing those earnings right back to shareholders in the form of dividends and share repurchases. In a recent presentation, the company revealed that it wants to distribute up to 80% of its total earnings to shareholders:

Images
Source: Company Investor Relations. 

Yet, as you can see, those aren't simple targets the company sets to entice investors, as it delivered a 71% payout to its shareholders last year. Recently, when discussing this impressive payout, the CFO of U.S. Bancorp, Andrew Cecere, added that this was not a one-time anomaly, saying simply, "We would expect to continue on this model into 2014." 

The bottom line
Although there are other companies with higher dividend payouts that appear to be better values, few can provide the remarkable business performance and commitment to return money to shareholders as U.S. Bancorp.

Warren Buffett once remarked, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price," so knowing that he even added to his position last quarter is simply one more reason to give U.S. Bancorp great consideration.

Is U.S. Bancorp the only dividend stock Buffett loves?
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. Just like U.S. Bancorp, Warren Buffett loves one of these too. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Patrick Morris owns shares of Bank of America, Berkshire Hathaway, and U.S. Bancorp. The Motley Fool recommends Bank of America, Berkshire Hathaway, and Wells Fargo. The Motley Fool owns shares of Bank of America, Berkshire Hathaway, Citigroup, PNC Financial Services, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers