Banks have bounced back since the financial crisis, but some might never return to their full former glory. Even though their huge gains over the past decade have been extremely impressive, neither Bank of America (NYSE:BAC) nor Citigroup (NYSE:C) has been able to fully recover the share-price declines that they suffered during 2008's recession and stock market plunge.

Both B of A and Citigroup have been survivors, but more recently, the two stocks struggled at the end of last year because of an abrupt reversal in expectations about interest-rate increases and economic growth. With many questioning that downbeat assessment, investors want more clarity on which bank is better situated if things turn out better than feared. Let's look at Bank of America and Citigroup to pick which is the better buy right now.

Citi logo in blue and red.

Image source: Citigroup.

Stock performance and valuation

Both Bank of America and Citigroup have had a tough time in the past year. Citigroup has suffered a big decline, watching its share price fall almost 20% since January 2018. Bank of America has held up better, but its shares are still down 9% over the past 12 months.

The stock-price declines have stood in stark contrast to recent financial performance, and that's sent earnings-based valuations sharply lower. Looking at recent earnings, Citigroup has an edge, with a trailing earnings multiple of just 9 compared with a corresponding figure of 11 for Bank of America. Similar disparities persist when you look at near-term future projections about earnings, as Citigroup's forward earnings multiple is just 7, compared with B of A's figure of 9.

Using book value gives similar results. Citigroup trades at a discount to book value, with shares fetching just a 0.85 multiple. Bank of America isn't hugely expensive at less than 1.2 times book value, but it's still quite a bit pricier. Citigroup wins this contest on a valuation basis.

Dividends

Getting dividends back to normal has been a priority for most financial institutions, and Bank of America and Citigroup have made good progress. Citigroup's yield is now an impressive 2.9%, finishing up ahead of B of A's 2.1% dividend yield.

It took a long time for Citigroup to start boosting its dividend, but once it started, it didn't waste any time. Its quarterly dividend payment more than tripled in 2016, doubled in 2017, and rose more than 40% in 2018, bringing the amount to its current $0.45-per-share payout. That's a nice contrast to the $0.01 per share that Citigroup had to pay for years following the financial crisis, showing how far the bank has come.

Bank of America has also done a good job of raising dividends, and its quarterly payment has doubled over the past year and a half. B of A was able to start boosting payouts sooner than Citi, but its pace of growth has been more modest. For dividend investors, Citigroup comes away with a current edge over Bank of America.

Growth prospects and risk

After a rough end to 2018, investors in Bank of America and Citigroup were nervous, but the stocks have delivered a nice recovery in January. Bank of America's fourth-quarter results showed the progress that the bank continues to make in leading the industry forward, as rising interest rates enabled it to boost income even as loyal deposit customers were willing to accept the bank's relatively low payouts on checking and savings accounts. Bank of America also made more loans, taking advantage of solid economic demand, and it hasn't had to sacrifice loan quality for growth. Combined with big gains in efficiency, Bank of America has been able to share its success with shareholders through stock repurchases and dividends, and that's reflected well on the Charlotte, North Carolina-based banking giant.

Citigroup had more challenges than Bank of America in its recent report, but it also has plenty of promise. In the fourth quarter, Citigroup struggled with revenue from its fixed-income trading unit, which suffered during the recent volatility in the financial markets. Yet cost-cutting efforts improved Citi's efficiency, and that helped to deliver solid earnings for the bank. CEO Michael Corbat was somewhat concerned about what he called "a more uncertain macro environment," but with solid performance from consumer banking and hopes that a more optimistic outlook now will draw more banking activity in the future, investors now see a favorable risk-reward picture for Citigroup.

And the winner is...

With a cheaper valuation and a higher dividend yield, Citigroup looks like the better buy here. Bank of America has plenty of promise, though, and it's entirely possible that both bank stocks will deliver strong performance during 2019 and beyond.

Check out the latest Citigroup and Bank of America earnings call transcripts.