Citigroup (C 1.34%) is an industry-leading bank in the U.S. that easily stands toe to toe with other industry giants, like Bank of America (BAC 0.95%). But that isn't enough of a reason to buy Citigroup stock. Here's a look at whether this banking giant is a buy now or if it is best avoided.
What does Citigroup do?
Citigroup's core business is traditional banking, which it offers to both consumers and businesses. There's nothing particularly special about offering bank and checking accounts or in making mortgage and business loans. It competes with local banks as well as national peers like Bank of America in this regard. And traditional banking is a very competitive business. What sets Citigroup apart from smaller peers is its scale, since it has offices throughout the U.S. and internationally. However, that still isn't enough to separate it from the pack when it comes to competitors like Bank of America.
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On top of the core banking business, Citigroup operates in capital markets, investment banking, and wealth management. All in, it is a highly diversified bank. But, again, that's no different from other large peers. Citigroup is a reasonable candidate to consider if you are looking to own a large bank, but that doesn't mean it is the bank you want to buy.
Citigroup's uneven dividend story
The average bank stock has a dividend yield of about 2.6%. Citigroup's yield is also 2.6%. Meanwhile, Bank of America's yield is 2.2%. If you are simply trying to maximize yield, Citigroup doesn't stand out from the overall bank pack, but it does have a higher yield than some of its large peers.
The dividend history here, however, leaves a little to be desired if you are a conservative dividend investor. During the deep 2007 to 2009 Great Recession, Citibank was forced to take a government bailout and to cut its dividend. To be fair, a lot of large U.S. banks did the same, including Bank of America. But not all banks faltered like that.
Notably, Canadian banks, like Toronto-Dominion Bank (TD 0.16%), made it through without a dividend cut, and some smaller U.S. banks, like United Bankshares (UBSI 0.40%), were able to survive while continuing to increase their dividends. In fact, United Bankshares just reached Dividend King status, with more than 50 annual dividend increases behind it. And, for reference, United Bankshares has a roughly 4% dividend yield today while TD Bank's yield is about 4.1%. If dividend reliability and income are what you are after, either of these banks could be a better fit for you than Citigroup.
Valuation is another problem for Citigroup
To be fair, Citigroup's business is much improved since the Great Recession, and its dividend is back in growth mode. So more forgiving investors still might want to consider it. Only there's another small problem; the stock doesn't look cheap. The price-to-sales, price-to-earnings, and price-to-book value ratios are all above their five-year averages right now. When you step back and look at the full picture, Citigroup just doesn't stand out from the banking pack.
