The stock market has been severely volatile over the past few weeks, as evident from the CBOE Volatility Index's 8.3% rise over the past month. The U.S. economy has been under extreme inflationary pressure, with the consumer price index increasing 8.3% in April, higher than the Dow Jones estimate of 8.1%. The Federal Reserve is determined to implement a much tighter monetary policy to fight persistently high inflation.
Furthermore, Goldman Sachs strategists have forecasted a 35% chance of the U.S. economy slipping into recession in the next two years. Amid the rising recession risks, dividend-paying stocks are considered solid hedges against elevated market volatility by securing a steady income stream. Berkshire Hathaway (BRK.A) (BRK.B) CEO Warren Buffett is known for investing in high-yielding stocks. Of the six bank stocks in Berkshire Hathaway's equity portfolio, three stocks pay high dividend yields and create passive income for investors.
Thus, it could be profitable to add dividend-paying Warren Buffett bank stocks, The Bank of New York Mellon Corporation (BK), Citigroup Inc. (C), and U.S. Bancorp (USB) to one's portfolio.
The Bank of New York Mellon Corporation (BK)
BK provides financial products and services in the United States and internationally. The company operates through four segments: Securities Services; Market and Wealth Services; Investment and Wealth Management; and Other. It offers real estate funds, private equity, and exchange-traded funds services. In addition, it offers securities lending, prime brokerage, middle-office solutions, enterprise data management, integrated cash management solutions, and clearance and collateral management services.
Last week, BK partnered with UBS Wealth Management USA to offer model portfolios. "Through BNY Mellon Innovative Income Portfolios, we're pleased to bring this suite of innovatively designed model portfolios for income-seeking investors to the UBS platform. This is a natural evolution for the firm, as we look to leverage our extensive experience in both the institutional and intermediary worlds to continue to build solutions around outcomes for advisors and their clients," said Andy Provencher, Head of North American Distribution for BK.
In April, BK and Aon plc announced a multi-faceted data and digital collaboration. This partnership will leverage the unique capabilities of both organizations to create new solutions to meet the needs of their clients. The companies will focus on supporting clients' environmental, social, and Governance (ESG) needs globally, leveraging their collective ESG data, analytics capabilities, and unique data sets. This collaboration is expected to promote the company's sustainability goals, expand market reach, and boost profitability.
In the fiscal 2022 first quarter ended March 31, 2022, BK's total revenue amounted to $3.93 billion. The company's net interest revenue, investment, and other revenue came in at $698 million and $70 million, respectively, registering an increase of 6.6% and 677.8% from the prior-year period.
BK pays $1.36 as dividends annually, yielding 3.11% on the current price. The company's dividends have increased at a CAGR of 6.7% over the past three years and 12.3% over the past five years.
Analysts expect BK's revenue for fiscal 2022 fourth-quarter ending December 2022 to come in at $4.32 billion, indicating a 7.5% increase year-over-year. The company has surpassed the consensus revenue estimates in three of the trailing four quarters. Also, the $1.29 consensus EPS estimate for the same quarter represents a 24% rise from the same period in 2021. It's no surprise that it has topped the consensus EPS estimates in each of the trailing four quarters.
Shares of BK have plunged 7.1% over the past month and closed Friday's trading session at $43.77.
Of the 16 Wall Street analysts that rated BK, four rated it Buy, while 12 rated it Hold. The 12-month median price target of $55.40 indicates a 26.6% potential upside. The price targets range from a low of $45.00 to a high of $68.00.
Citigroup Inc. (C)
C is a diversified financial services holding company. It offers various financial products and services to consumers, corporations, governments, and institutions in North America, Latin America, Europe, the Middle East, and Africa. The company operates through two segments: Global Consumer Banking (GCB); and Institutional Clients Group (ICG). It provides traditional banking services and various banking, credit card, lending, and investment services. It operates more than 2,315 branches, primarily in U.S., Mexico, and Asia.
Earlier this month, C launched Single Euro Payments Area (SEPA) Instant Payments in Europe. The clients will be able to pay to and receive from 36 SEPA countries instantly. The offering allows SEPA Credit Transfers to be made within seconds, 24/7, and funds are available to recipients immediately. This will also provide clients with a single point of access through Citi's platforms, CitiConnect® for Files, CitiConnect® API, and CitiDirect® for the execution of Instant Payments. This new offering is expected to extend the company's customer reach, expand its payments business, and boost revenues.
C's total revenues came in at $19.19 billion in the fiscal 2022 first quarter ended March 31, 2022. The company's revenues from the Institutional Clients Group segment and Personal Banking and Wealth Management segment amounted to $11.16 billion and $5.91 billion, respectively. Its revenues from Corporate and other segments improved 331.8% from the year-ago value to $190 million.
C's dividend pay-outs have grown at a CAGR of 4.3% over the past three years and 26.1% over the past five years. While its four-year average dividend yield is 3.06%, its current dividend translates to a 4.10% yield.
The consensus revenue estimate of $17.95 billion for the fiscal 2022 fourth quarter, ending December 2022, represents a 5.5% growth from the prior-year period. It has surpassed the consensus revenue estimates in each of the trailing four quarters. Analysts expect C's EPS for the same quarter to come at $1.54, registering a rise of 5.5% year-over-year. Furthermore, the company has surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has plunged 7.1% over the past month and closed Friday's trading session at $49.75. However, the 12-month median price target of $65.41 indicates a 31.5% potential upside. The price targets range from a low of $53.00 to a high of $93.00. Of the 17 Wall Street analysts that rated C, eight rated it Buy, eight rated it Hold, while one rated it Sell.
U.S. Bancorp (USB)
USB is a financial services holding company that offers a wide range of financial services to individuals, businesses, institutional organizations, governmental entities, and other financial institutions in the U.S. The company operates through five segments: Corporate and Commercial Banking; Consumer and Business Banking; Wealth Management and Investment Services; Payment Services; and Treasury and Corporate Support.
This month, USB entered into a collaboration agreement with LiquidX, a trade-finance fintech, to simplify and accelerate supply-chain financing. This collaboration will leverage USB's strong balance sheet with LiquidX's streamlined platform technology to help address supply-chain-finance friction and cash-flow challenges companies face. This will provide a single intuitive interface that seamlessly connects suppliers, buyers, and U.S. banks in the supply-chain ecosystem.
In the fiscal 2022 first quarter ended March 31, 2022, USB's total net revenue increased 2.3% year-over-year to $5.60 billion. Its net interest income came in at $3.20 billion, registering an increase of 3.6% from the prior-year period. Its non-interest income amounted to $2.40 billion for the first quarter. In addition, income before provision and income taxes came in at $2.09 billion.
USB pays $1.84 as dividends annually, yielding 3.74% on the current price. Its 4-year average dividend yield translates to 3.16%. In addition, the company's dividends have increased at a CAGR of 8.5% over the past three years and 10.5% over the past five years.
The $25.14 billion consensus revenue estimate for its fiscal year 2022, ending December 2022, represents a 10.6% improvement year-over-year. The $5.31 consensus EPS estimate for fiscal 2023 represents a 23.1% rise from the previous year. The company has an impressive revenue and earnings history as it has surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has declined 4.9% over the past month and closed Friday's trading session at $49.21.
Of the 14 Wall Street analysts that rated USB, four rated it Buy, while ten rated it Hold. The 12-month median price target of $59.85 indicates a 21.6% potential upside. The price targets range from a low of $52.00 to a high of $72.00.
BK shares were trading at $44.86 per share on Monday afternoon, up $1.09 (+2.49%). Year-to-date, BK has declined -21.69%, versus a -16.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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