I always love to follow the investments of famous investors, to study and analyze why they buy a certain stock at a certain price. One of the investors I admire is Lou Simpson, who delivered a 20% annual return for more than 30 years during his time with GEICO Insurance.

He currently holds quite a concentrated portfolio of 13 stocks, which is worth around $1.9 billion in total. In the third quarter, he increased his stake in U.S. Bancorp (NYSE:USB) significantly, owning nearly 1.88 million shares, or 3.7% of his total portfolio. I think there are four reasons Lou Simpson likes U.S. Bancorp.

Four reasons to invest in U.S. Bancorp
U.S. Bancorp has a long operating history, dated back to 1863, having more than 3,000 branches and nearly 5,000 ATMs. Most of its business, around 47% of its total revenue, was generated from consumer and small business banking while the payment services and wholesale banking & commercial real estate sections accounted for 26% and 19%, respectively, of its total revenue.

First, in terms of profitability and growth, in the past five years, U.S. Bancorp has managed to grow its book value consistently, despite the recent global economic crisis. Its book value increased by 75% from $10.47 per share in 2008 to $18.31 per share in 2012, while its market value per share grew only 28% during the same period. Since 2008, its net interest margin has remained quite high, ranging from 3.58% to 3.88% while the return on equity stayed in the range of 8.2%-16.2%.

Second, in terms of deposits, U.S. Bancorp has managed to attract low-cost deposit types, including interest checking and money market savings. Those two deposit types accounted for nearly 55% of the total interest-bearing deposits while the time certificates of deposit less than $100,000, the most expensive one, represented only 8.6% of the interest-bearing deposits. Actually the largest type of U.S. Bancorp deposit was a noninterest-bearing one, worth $67.2 billion in 2012.

Third, U.S. Bancorp is not so heavy in real estate lending, but rather focusing on retail lending and commercial loans. While the commercial loan is the biggest loan category, accounting for roughly 30% of the total portfolio, other retail loans ranked second, representing 21% of the total loan portfolio. Thus, the recent crisis in the real estate market did not affect the bank as much as its peers such as Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC)

In the period of 2008-2009, although Bank of America generated a negative return on equity, and Wells Fargo produced only 4.12% ROE in 2008, the lowest ROE level of U.S. Bancorp was 8.42% in 2008.

Last but not least, U.S. Bancorp has also consistently returned cash to shareholders via both dividend payments and share repurchases. In the third quarter, the company said it has returned 77% of its earnings to shareholders through a $0.23 quarterly dividend payment and the repurchase of more than 17 million shares. Currently, U.S. Bancorp provides investors a dividend yield of 2.2%.

Bank of America and Wells Fargo could offer investors good cash return
U.S. Bancorp's dividend yield is much higher than that of Bank of America, of only 0.2%. However, currently, Bank of America focuses on share buybacks to return cash to shareholders, rather than dividend payment. In March, the bank announced the initiation of a $5 billion share buyback program through the beginning of next year.

Wells Fargo pays the highest dividend yield among the three banks, offering investors a 2.6% dividend yield. In March, Wells Fargo also announced that the total share repurchase in 2013 would be higher than that in 2012. If Wells Fargo kept the same $4 billion per share buyback like it did in 2012, the share buyback yield could be around 1.74%. 

My Foolish take
Investors might feel quite comfortable following Lou Simpson into U.S. Bancorp, because of its conservative lending practice, low-cost deposits, and stable profitability. Moreover, investors could also enjoy a decent 2.2% dividend yield while holding the stock. Income investors could also seek cash return by investing into Wells Fargo and Bank of America, with their aggressive buyback plans and their nice dividend payments.