Some of the best investments on the market are in companies that can perform strongly over a long stretch of time. Unfortunately, that's easier said than done when it comes to banking, which has its own unique set of challenges. We asked several of our analysts to name one lender they think can deliver consistent returns for its shareholders -- in other words, a truly "set it and forget it" banking stock.
Matt Frankel: One bank stock I plan on holding forever is Canada-based Toronto-Dominion Bank (NYSE:TD), known to most consumers simply as TD Bank. The bank has grown tremendously over the past decade, both organically and through major acquisitions, and is one of the most efficient and well-capitalized banks operating in the U.S.
The main reason I trust TD Bank over the long run is its sustainable, low-risk business model. Basically, TD Bank focuses most of its efforts on consumer banking operations, and it strives to be the best at that aspect of the business. Known as "America's Most Convenient Bank," TD keeps its branch network open late and on the weekends, and prides itself on offering the best customer service of any of the major banks. In fact, TD was named Money magazine's "Best Big Bank" of 2014.
To illustrate TD's solidity, consider that it has never had to cut its dividend, even during the financial crisis. The bank has remained profitable, even in the toughest of the tough times, and is now doing better than ever before.
For those who don't own TD, now might be a great time to get in. Thanks to the strong U.S. dollar (much of TD's revenue is in Canadian dollars) and headwinds caused by the collapse in oil prices, TD is about 15% cheaper than it was just four months ago. With earnings growth of 28% expected over the next three years, TD Bank is a long-term winner that just happens to be on sale right now.
Eric Volkman: Banking stocks haven't been stellar performers in 2015. Many of the sector's big incumbents and regional stars alike have seen their share prices drop or effectively flat-line for the year to date.
But not New York Community Bancorp (NYSE:NYCB), which is up a comparatively rich 5%. I think at least some of that is due to the bank's business model, which is as solid and unassailable as any you'll find in the sector.
The bank's bread-and-butter business is mortgages for multifamily dwellings in New York City. Not only is the Big Apple a permanently hot residential market, many of the city's apartments are rent-controlled. This combination ensures a thick, steady, and reliable stream of revenue.
Not surprisingly, the lender's financial performance has been consistently strong across the years. Over the past half-decade its quarterly net profit margin hasn't dipped below 32%.
And there's the dividend. Oh yes, the dividend. New York Community Bancorp has the financial firepower to pay a generous quarterly distribution, which, like its overall business, has been consistent and strong for years. At $0.25 per share, the payout currently yields nearly 6%; much higher than even the biggest names in the sector.
Dan Caplinger: Love it or hate it, Goldman Sachs (NYSE:GS) has one of the strongest reputations in the investment banking community for identifying lucrative business opportunities and making the most of them. The irony is that even though Goldman itself profits from the frequent trading activity of its clients, long-term investors can claim their share of the investment bank's success without a lot of buying and selling.
Admittedly, some investors won't feel comfortable with the ethics of an institution that has paid billions in legal settlements and faces plenty of other allegations of misdeeds throughout its history. Yet with the U.S. economy growing and market volatility appearing again, Goldman's struggling underwriting, fixed-income trading, and investment and lending businesses should start to bounce back from recent weakness. Moreover, even if its public perception is less than stellar, Goldman has maintained a strong reputation within the financial community, and has attracted long-term investors like Warren Buffett to the stock.
Goldman Sachs is a good way to diversify a portfolio of financial stocks beyond the traditional business model of collecting deposits and making mortgage loans. Having endured the financial crisis, Goldman has plenty of potential for future gains.
Dan Caplinger has no position in any stocks mentioned. Eric Volkman has no position in any stocks mentioned. Matthew Frankel owns shares of The Toronto-Dominion Bank (USA). The Motley Fool recommends Goldman Sachs. 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.