Is the Party over for Bank Stocks?
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Ida Hansen
Is the Party over for Bank Stocks?

Bank stocks have definitely had a good run.

JP Morgan (NYSE: JPM), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), Citigroup (NYSE: C) and others have all soared since the bottom of The Great Recession.  Wells Fargo just reported very strong profits.  The housing recovery has been particularly helpful for the banking sector.

But Wells Fargo just announced massive layoffs in its mortgage department due to declining business.

JP Morgan has massive legal problems, and costs.  The same could be true for Bank of America.  There are still concerns about Citigroup, which is down almost 5% for the quarter (but up almost 27% for 2013).

Even though Warren Buffett is a major shareholder of Bank of America and Wells Fargo, the good times could be ending for financial stocks.  There are many signs that the housing recovery is running out of steam in the United States.  That will take away a great deal of fee and service income for financial institutions.

But the US Government is obviously committed to its banking sector, which investors should not ignore.

As a result, investors might now look to bank stocks for dividend income.  JP Morgan pays a dividend of 2.88%.  The dividend yield for Wells Fargo is 2.81%. Both are much higher than the average dividend of 1.9% for a member of the Standard& Poor’s 500 Index.

The chart below certainly shows how good the year has been for Wells Fargo.  But there have been periods where it has dipped.  As Wells Fargo has a strong dividend history, investors should look to buy when it falls.  That will not only allow for buying shares at a discount, but also result in a much higher dividend yield.


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