The stock market seems to approach new highs every single day. The Dow Jones Industrial Average, S&P 500 index, and NASDAQ have enriched long-term investors over the past decade. While this is good news for current investors; the bad news is that it is difficult for new investors to locate value in the current market. Technology stocks, biotechnology stocks, and fintech stocks trade at astronomical multiples. Savings accounts are no place to store excess capital with interest rates approaching zero. There is however safe harbor to be found for the prudent investor in the banking sector. Bank stocks are some of the best values around. Listed below are a few of the reasons why you should put you money in bank stocks.
Put Your Money In Bank Stocks
Well Capitalized
The Wall Street collapse and financial crisis of 2008 brought about increased regulation of the financial sector. The result is that banks are overly capitalized and are better positioned to survive any economic downturn. The banking sector is as healthy as its ever been.
Banks have been hoarding billions of dollars in cash due to the expectation of an economic depression and severe credit card losses. Economic conditions have no deteriorated to the level that banks originally projected so the big banks have excess cash. The major banks are overly capitalized and are in position to weather any severe protracted economic event.
Dividends
The good news is that bank dividends are back on the rise. Banks slashed and suspended dividends during the 2008 economic crisis eliminating one of the primary reasons to own bank stocks. TARP loans and government regulations made it impossible for banks to distribute capital back to investors in the form of dividend payments. Over the past few years, banks have subsequently reinstated dividend programs making bank stocks attractive again. The income provided by bank capital will be useful for reinvesting and adding more shares in a topsy turvy market. Dividend income is also useful for providing a fixed passive income stream.
Share Repurchases
The FDIC and Treasury Department have been loosening regulations on large financial institutions over the last four years. The restrictions have been lifted which limited banks and their ability to repurchase shares. The big banks have received governmental approval to buy back stock. Stock buybacks limit the outstanding float and help to buoy share prices for current investors. Share repurchases are a positive sign that shows that corporate management teams believe that shares are cheap.
I personally love the stocks of Bank of America, JPMorgan Chase, and Citigroup. However I am not a fan of Wells Fargo as the bank has experienced one financial scandal after another. Stick with the banks who are able to generate solid earnings, possess competent management teams, and provide stable dividend income.
