Bank dividends today reportedly are generally safer than they were during the financial crisis and possibly could offer investors haven from the coronavirus market chaos.
While market gyrations have given many investors flashbacks to the financial crisis, banks aren’t in the same precarious position they were 12 years ago, analysts at Keefe, Bruyette & Woods said in a note earlier this week.
Lending standards have tightened up, banks are better capitalized, and years of stress testing have forced banks to prove their durability in scenarios such as the one we’re seeing now, Barron’s explained.
“This, along with many years of stress testing, should provide investors comfort that balance sheets are well positioned to withstand a slowdown in the economy,” KBW analyst Christopher McGratty wrote this week.
By KBW’s measure, taken earlier this week, the following banks provide sustainable dividends, with payout ratios below 75% under “severely adverse scenarios,” while also offering attractive yields:
- Wells Fargo (ticker: WFC): yields 6.3%
- Citigroup (C): 4%
- Comerica (CMA): 7.6%
- Citizens Financial Group (CFG): 6.9%
- Huntington Bancshares (HBAN): 6.3%
- KeyCorp (KEY): 6.1%
- Cadence Bancorp. (CADE): 8.4%
- Bank of Butterfield (NTB): 8.1%
- Umpqua Holdings (UMP): 7.5%
However, global stocks plunged into a bear market and oil slumped on Thursday after U.S. President Donald Trump banned travel from Europe to stem the spread of coronavirus, threatening more disruption to the world economy, Reuters reported.
With the pandemic wreaking havoc on the daily life of millions, investors were also disappointed by the lack of broad measures in Trump's plan to fight the virus, prompting traders to bet on further aggressive easing by the U.S. Federal Reserve.
"He (Trump) did not announce any new concrete measures such as a large-scale payroll tax cut to buffer the economy against the impending coronavirus slowdown," said Jeffrey Halley, senior market analyst at OANDA.
"That has probably disappointed markets more than anything."
The speech clearly underwhelmed investors, who have been waiting for a “major” economic plan the president promised on Monday and has yet to put to paper.
Futures on the benchmark S&P 500 index steadily deteriorated as details of Trump’s plan leaked out over the dinnertime hours in New York. Down about 0.8% when his remarks began, the loss extended to 2% by the time the president finished speaking and got worse from there.
By Thursday morning, the sell-off sweeping global equities gathered pace, with U.S. futures once again tumbling by the most allowed and a gauge of world stocks on course to enter a bear market.
“Investors are looking for bold government stimulus. So far we haven’t seen a lot of detail and there isn’t much confidence it will happen quick enough,” said Nathan Thooft, Manulife Investment Management’s head of global asset allocation.
Trump’s most ambitious proposals include a suspension of U.S. payroll taxes, paid sick leave for hourly workers and $50 billion in additional loans for small businesses. Both Democrats and Republicans have expressed reticence about a payroll tax cut, and about three hours after his address, House Democrats released their own plan to fight economic fallout from the virus that served to highlight how modest Trump’s offering sounded.
The Democratic plan includes free coronavirus testing, paid emergency leave for workers, food security assistance and other measures to help ordinary Americans weather the outbreak.
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