Investing in Banks

With the current news about possible recession and the subprime market crisis investing in financial stocks seems like a risky venture. However the market volatility and current fears have created some good buys among the major banks. The key to making these stocks safe is the dividend yield which is currently paying more than what the banks are giving in interest on cash accounts. For the unacquainted, cutting a dividend is a sure way to upset investors and drop the value of a stock. For that reason dividend cuts are probably not somewhere the banks will go, even in a recession. I am including three big banks that most people are familiar with that are stable companies.

The first bank on the list is Bank of America (BAC) which has a 213 billion dollar market cap and a forward P/E of under 10. BAC also pays a 5.1% dividend yield which is paid quarterly as the majority of dividend stocks do. The Bank of America website shows records of dividends since 1993 and they have grown since then. The dividend growth continued through the dot com bust and should continue to grow in the future.

The second bank on the list is Citigroup (C) which has a 215 billion dollar market cap and a forward P/E of almost 9. C also pays a 4.8% dividend yield that has been growing since 1986 which is when the dividend history starts on the company website. Citigroup illustrates how large and resilient the big banks can be as the CEO Chuck Prince is widely regarded as one of the worst CEOs in the country. Citigroup has continued as well as the dividend despite Prince's leadership and should pick up with the firing of Prince. Sentiment is that Chuck Prince will be fired before the year is over.

Rounding out the list is Wachovia (WB) which has an 89 billion dollar market cap and a forward P/E that is close to 9. WB also pays a 5.3% dividend yield and has paid on dividends since the dividend history starts in 1980. Over the time since 1980 there have been a few dividend cuts but they were not cut completely.

I own stock and am long in all three companies and am buying more as the stocks go down amid subprime and recession concerns. It is a win-win situation when employed with dividend reinvestment also known as a DRIP over the long haul. The reason it is win-win is because if the stock goes down you get a bigger chunk of stock on dividend payments. The stocks going up make you money of course, so it is hard to lose if you look at it in a long term perspective.

I am an independent investor and not a broker, and advise you to look at your financial goals, do your homework and consult a professional before making any investing decisions.