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:

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.


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:

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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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