Things are looking up for bank stocks, making options like the SPDR S&P Bank ETF (NYSEArca: KBE) appealing to a broader swath of investors. Last week, JPMorgan Chase ( NYSE: JPM ) got the OK to resume stock buybacks and Moody’s Investors Service says high shareholder payouts early this year won’t strain banks’ capital positions.
If the economy improves, KBE holdings may not need to cover as many bad loans as expected, meaning those reserves could eventually be turned into profits. The big banks are also currently well-capitalized.
“This year, banks have been one of the better-performing sectors in the S&P 500. The SPDR S&P Bank exchange-traded fund (ticker: KBE) is up more than 25%, outpacing the roughly 4% advance in the index,” reports Carleton English for Barron’s. “But even with the sudden run-up, income-hungry investors still have reason to invest in the group. Many bank stocks yield more than the 1.4% offered by the broad S&P 500, and several have dividend yields in excess of 3%. What’s more, the Fed has allowed them to start raising their payouts again, if only in line with earnings.”
The Banks Are Booming
Rising bond yields help strengthen the appeal of bank stocks. Those betting on a recovery could do well to consider buying into the financials group as the yields start to recover after the record lows.
KBE “yields 2%, and with financial-sector earnings set to grow by 50% in 2021, there’s room for that to get larger. But for investors looking to do a little more work, there are several compelling opportunities,” according to Barron’s.
Furthermore, many are betting on the improved economic conditions that will help support loans and the further expansion of the economy. Plus, there are some near-term catalysts for KBE and friends, including solid credit quality.
“As Covid-19 vaccines were rolled out and economic data improved, Wall Street was already expecting that 2021 would be a good year for banks. The first three months of the year have confirmed those hopes, and with the economic recovery still in its early innings, now could be a good time for investors to park their money with banks,” concludes Barron’s.
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