Dividend Stocks

7 Dirt-Cheap Bank Stocks with Massive Dividends

Bank stocks are down badly this year. Borrowing costs are sky-high, cutting into net interest income. Likewise, higher yields are pushing “old bond” values down and increasing internal credit risk. These and more factors mean we’re seeing bank collapses outpacing anything since 2008. The broad banking sector faces these repercussions. The SPDR S&P Bank ETF (NYSEARCA:KBE) is down nearly 15% this year and 20% since last November. 

And, while markets are rebounding, bank stocks will likely take longer to realign. This represents a massive opportunity for investors, though. Smaller and regional bank stocks are typically high-yield treasure troves. At the same time, those smaller banks get the brunt of bearish sentiment and sell off more quickly. They also take longer to rebound. This means a handful of cheapo bank stocks with dividends are priced right with massive income upside. 

Citizens Financial Group (CFG)

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Citizens Financial Group (NYSE:CFG) is one of the largest regional bank stocks. It is arguably the best cheap bank stock to buy today. The Rhode Island-based banking firm has a 0.58 price-to-book ratio and a 6.42% forward dividend yield. Its total yield jumps to more than 13% when you include buybacks. 

CFG, split from the Royal Bank of Scotland (NYSE:NWG) in 2015, successfully pivoted from a bleak financial situation driven by post-2008 inefficiencies. Since then, the company’s operational realignment has put it on a successful track. Experience also serves as a roadmap for management to navigate today’s trying times.

Moreover, CFG’s core constituency – Rhode Islanders – seems to be rebounding financially faster than the rest of America. In a report, Rhode Island’s business development growth topped 6.8% in the previous quarter. That’s far higher than the slim 0.3% national jump. One of Citizens’ core financial products is mid-market lending and improved business prospects in Rhode Island bodes well for this cheap bank stock. 

Cheap Bank Stocks: Truist Financial Corp (TFC)

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Truist Financial Corp’s (NYSE:TFC) ex-dividend date is on September 9th, so there’s still time to capture a hefty 6.67% dividend yield on this cheap bank stock. TFC’s price-to-book ratio is just 0.75, meaning there’s little reason to sell even if you’re solely interested in the income opportunity presented this week. 

Recently, Truist began an aggressive realignment campaign to adapt to changing economic conditions and do what they do best: focus on consumer and commercial banking solutions. Last month, TFC sold off its insurance brokerage business to private equity for $10 billion. That cash infusion, while clearly beneficial to shareholders, was just part of the net positive. One of the hardest-hit bank stocks this year, experts clamored for TFC to execute a rapid turnaround or face dire consequences. 

Truist is also working to improve efficiencies and cut costs elsewhere, which should begin bearing financial fruit in mid-2024. In the meantime, investors can capture the upside on this downbeat bank stock, offering a decent dividend yield.  

KeyCorp (KEY)

KeyBank storefront logo

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KeyCorp (NYSE:KEY) focuses on middle-market commercial banking throughout Ohio and New York, making it the perfect cheap bank stock to capture a rapidly growing economic segment. As a result of their interest income from those commercial loans, KEY offers a high 7.2% dividend yield. Likewise, after a rough period earlier in the year, Morningstar pegs KEY’s fair per-share value 43% higher than today’s trading price. 

Likewise, ten polled analysts say the stock is worth a Buy, with six affirming it’s worth Holding. Tellingly, none say sell and research firm EquitySet’s fair value (26% above today’s price) is aligned with broad consensus. Whether you take a bull case – as in Morningstar’s assessment – or a more bearish outlook like EquitySet’s, there’s undeniably upside for this cheap bank stock.

Cheap Bank Stocks: Comerica (CMA)

A sign for Comerica (CMA) bank in California.

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Comerica (NYSE:CMA) is another cheap bank stock offering a high dividend at a 6.37% yield. Critically, CMA is one of the few regional banks able to adapt to today’s higher-interest-rate climate. CMA boats a whopping 25% return on equity, more than double the industry average. This means CMA is better than peers at doing more with less, and shareholder value is carefully preserved by prudent financial management. Likewise, CMA’s net margin beats out competitive averages by a solid 4%. 

Some of that cushion can be attributed to Comerica’s diversification. In addition to standard regional real estate lending and mortgage management, Comerica maintains an equity fund service arm to target private equity and venture capital firms. As institutional investors increasingly cycle into these alternative assets and shy away from stocks and bonds amid volatility, Comerica’s diversified services stand to gain from that increased “smart money” sentiment. 

Valley National Bancorp (VLY)

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Valley National Bancorp (NASDAQ:VLY) is a cheap bank stock, trading at just 0.68 price-to-book while offering a 5.31% total yield. But VLY has an additional benefit to bullish investors: beyond simply banking, VLY is a cannabis stock. 

Financial management is a major obstacle for cannabis companies, primarily due to the enduring federal prohibition of cannabis, which dissuades established banking institutions from offering financial services to these businesses. But VLY is bucking this trend by wholeheartedly embracing cannabis banking.

Valley National has set up a dedicated branch of its banking services. The aptly named “Cannabis Banking” caters to the specific needs of cannabis-related businesses. This specialized branch is designed to support a variety of players in the cannabis industry. Customers include dispensaries, cultivators, and even hemp-related businesses that typically rely heavily on cash transactions. Relying on cash can be risky, as it exposes these businesses to the potential for theft and unwanted scrutiny from the IRS. By providing a legitimate financial platform for cannabis companies to operate within the confines of the law, Valley National is offering a valuable service.

The cannabis industry is growing and maturing. Valley National will likely maintain a leading position in the banking sector due to its pioneering role. Even as traditional banks gradually enter the arena, major cannabis companies are likely to remain loyal to and dependent on Valley National’s specialized cannabis banking services.

Cheap Bank Stocks: Huntington Bancshares (HBAN)

The front of a Huntington (HBAN) office.

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Huntington Bancshares (NASDAQ:HBAN) is priced to buy, and this cheap bank stock offers a decent 5.84% dividend yield. HBAN’s midwestern market penetration means it offers a slew of services including consumer/commercial banking, insurance, wealth management, and more to a ton of customers in eight states with limited competition. 

Recently, HBAN beat earnings expectations by nearly 10%, indicating the bank stock has enough legs to withstand ongoing economic unease. Importantly, HBAN’s net interest income climbed in the most recent quarter. That’s been rare among bank stocks, as higher borrowing costs make lending income margins increasingly slim. 

HBAN is also expanding its ambitions to alternative assets in a bid to capture greater market share from institutional interest. Last year, HBAN’s investment banking arm lengthened to reach Boston, Denver, and ten more cities after it bought Capstone Partners. This helps spread HBAN’s revenue streams amid higher interest rates, reducing overall income risk while capturing institutional upside.  

M&T Bank (MTB)

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M&T Bank (NYSE:MTB) is the stablest stock on the list, which comes at the price of a lower dividend. Still, its aggressive buyback program equates to a 12.98% total yield – nothing to sneeze at! The small but stable bank operates across 12 states. MTB offers a diverse range of financial products and services, encompassing retail and commercial banking, wealth management, mortgage lending, and commercial lending. Critically, M&T Bank’s financial performance beats many other cheap bank stocks on our list.

Specifically, during the second quarter, the bank reported a robust net income of $867 million. That’s a remarkable 299% year-over-year increase.  This notable surge in net income can be attributed to the combined factors of higher interest rates and increased loan demand.

MTB’s share price is down badly this year, losing more than 15% since January. But its strong revenue and earnings performance, when compared to other small-to-mid-sized banks, suggests the possibility of a more positive trajectory by 2024. Likewise, the bank’s attractive valuation is compelling, a shares trading at just 0.84 price-to-book.

On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Jeremy Flint, an MBA graduate and skilled finance writer, excels in content strategy for wealth managers and investment funds. Passionate about simplifying complex market concepts, he focuses on fixed-income investing, alternative investments, economic analysis, and the oil, gas, and utilities sectors. Jeremy’s work can also be found at www.jeremyflint.work.

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