Financial stocks may not be the flavor of the season, but every core portfolio should include some. The group includes JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC) and Citigroup (NYSE:C) and all of them deserve a fresh review. After the financial crisis, many investors pulled away from the sector – bruised and battered. That painful carnage continues to linger in the minds of many investors. Successful investing is all about keeping your emotions at bay, and looking at the cold, hard facts, which may present a very compelling picture.
Financial Earnings are Robust
Quite a few banking stocks reported solid quarterly numbers in the past few weeks. JPMorgan Chase & Co. (NYSE:JPM) recorded top-line and bottom-line that beat Street estimates. Bank of America Corp (NYSE:BAC) swung to a first quarter profit, and looks the most attractive among the big banks because of its dirt-cheap valuations. Citigroup Inc (NYSE:C) also posted a better than expected 16 percent jump in quarterly profit. These big banks are expected to continue this upward trend, on the back of lower expenses and costs.
The Prospect of Higher Dividends
Dividend opportunities in the financial sector abound, thanks to recent increases and sustainable payout ratios. While dividends were slashed after the financial crisis, the Federal Reserve finally gave its nod to Bank of America Corp (NYSE:BAC) and Citigroup Inc (NYSE:C) increasing their dividends. JPMorgan Chase & Co. (NYSE:JPM) currently yields 2.7 percent after raising its quarterly payout to 44 cents. Stability is returning to the sector, and the Fed has acknowledged that, offering the prospect of future increases.
Buybacks among financials are Increasing
The Federal Reserve’s seal of approval on increased buybacks by these financial stocks is equally important. Citigroup Inc (NYSE:C) was granted permission to boost its share repurchase program to $7.8 billion from the current $1.2 billion. JPMorgan Chase & Co. (NYSE:JPM) announced $6.4 billion in buybacks. Repurchases are encouraging not only because they lift EPS, but more so because they reflect that confidence is back in the system.
The Macro Picture Looks Good
Many macro-economic indicators are looking good. The government’s April employment data brought reassurances that the economy is picking up steam. However, the most important from banking point of view is that consumer borrowing jumped by the most in a year. The economy is stable, and consumers are increasingly confident about the recovery. This augurs well for financial stocks.
If you have been shunning the sector, think again. It’s time you revisit JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corp (NYSE:BAC) and Citigroup Inc (NYSE:C). Just a case in point. Everyone’s favorite investment guru Warren Buffet currently owns a $25 billion stake in Wells Fargo & Co (NYSE:WFC) through his Berkshire Hathaway, on top of the $2.5 billion in Goldman Sachs Group Inc (NYSE:GS).