With the stock market bumping along in negative territory this year, dividends become even more important to investors. They not only provide income but also boost a stock's total return.
Banks are cyclical in that they do well when the economy is strong and people are borrowing and investing. It's just the opposite in a down economy. But one of the world's greatest investors, Warren Buffett, founder and CEO of Berkshire Hathaway, loves banks because he knows that expansions last much longer than recessions, so he can count on banks to benefit in those periods of economic growth.
But due to the cyclical nature of banks, the dividends are prone to stalling out and sometimes get reduced, as we saw during the COVID-19 recession. But one bank that has maintained and increased its dividend is PNC Financial Services Group (PNC -2.02%). It just boosted its dividend again this month, which brings up the question: Does PNC have the best dividend among big banks?
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PNC bumps up its dividend by 20%
PNC Financial is a Pittsburgh-based bank with about $541 billion in assets. It is the sixth-largest bank in the U.S. and its purchase of BBVA's (Banco Bilbao Vizcaya Argentaria) U.S. banking operations last year gives it a national footprint.
PNC just raised its quarterly dividend this month to $1.50 per share, payable on May 5. It represents a 20% increase over last quarter when the payout was $1.25. If the bank maintains this payout throughout the year, it would amount to $5.75 per share. The stock was about $175 per share as of April 14 and has a dividend yield of 3.4%. That is a higher yield than the median in the banking industry, which is about 3%.
The bank has a payout ratio of about 36%, which means that about 36% of its earnings go toward the dividend. That is a good, sustainable number, right in the sweet spot. Anything over 50% to 60% means the banking company might be paying more than it can afford for the dividend, while a payout ratio below 20% means the company can probably afford to increase it.
In addition, in a sign of PNC's consistency, it has increased its annual dividend per share for 12 straight years, dating back to 2010, when it paid out $0.10 per share quarterly. Since 2017, when it paid out about $2.60 per share annually in dividends, PNC has more than doubled the payout.
Is it the best dividend in the banking business?
By all measures, PNC is a great dividend stock. If you bought 30 shares right now, assuming a $1.50 dividend per share per quarter, you'd have about $180 in dividend income after four quarters. In terms of total dividend paid out, that's by far the highest among its peers. But it has a higher share price at about $175. Let's look at some of PNC's peers to see how it compares in other categories.
| Bank |
2022 |
10-Year |
2017 Total Dividend |
2022 Annualized Dividend |
Current |
|---|---|---|---|---|---|
| JPMorgan Chase | 3.1% | 282.8% | $2.04 | $4 | 22.8% |
| Bank of America | 2.1% | 403.2% | $0.195 | $0.42 | 25.2% |
| Citigroup | 3.9% | 75.9% | $0.64 | $2.04 | 21% |
| Wells Fargo | 1.6% | 84.9% | $1.56 | $1 | 14.4% |
| U.S. Bancorp | 3.4% | 121.9% | $1.16 | $1.84 | 30% |
| PNC Financial | 3% | 260.4% | $2.60 | $6 | 33% |
Source: YCharts. Data as of 11 a.m. April 18, 2022. Note: 2022 annualized dividend is the current dividend rate multiplied by four quarters; the 10-year total return includes dividend reinvestment. Chart by the author.
Of the six largest banks, three have higher yields, Citigroup (3.9%), U.S. Bancorp (3.4%), and JPMorgan Chase at 3.1%. In terms of payout ratio, PNC is around 33%, U.S. Bancorp is around 30%, while the others are below 30%.
PNC has the longest streak among the six largest banks with 12 straight years of dividend raises. JPMorgan Chase and U.S. Bancorp have both increased their dividends for 11 consecutive years, while the other three have streaks of two years or fewer.
Lastly, let's look at how the stock price of each of these banks has performed over the past 10 years. As of April 14, only Bank of America (15.8%) and JPMorgan Chase (11.8%) have a higher annualized return than PNC's 11.1% annualized return over the past decade.
So, is PNC the best dividend stock among its large bank peers? Citigroup has the highest yield, but not the consistency. U.S. Bancorp has a similar yield and record of consistency, as well as payout ratio, but PNC has a much higher total return. JPMorgan Chase is comparable with PNC in most categories, including total return, but has a smaller annual payout.
You could certainly make an argument that PNC has been the best dividend stock among large banks over the past decade, with JPMorgan Chase and U.S. Bancorp right there with it.
