The big bank stocks have been tainted ever since the Great Recession. Six years later, there are lots of reasons to still hate the big banks.
But there is also a unique income opportunity unfolding today. Investors who can consider big bank stocks with an open mind may be set up for big profits in 2015.
Prior to the Great Recession, banks were known to be solid dividend stocks. They offered a solid 3% to 5% dividend.
More importantly, they had a history of increasing their dividend payments. For example, between the year 2000 and 2007, Citibank (NYSE: C) increased its dividend by 350%. Wells Fargo (NYSE: WFC) grew its dividend 181% over the same period.
Starting in 2007, mounting losses from bad mortgages hit most banks. That forced nearly every major bank to dramatically cut or eliminate its dividend. When that happened, investors dumped bank stocks. That was especially true of income investors, who bought bank stocks primarily because of their seemingly healthy dividends.
|Company||Share Price||Yield||Share Price||Yield||Share Price||Yield|
|Bank of America (BAC)||$48.24||5.30%||$17.62||1.20%||-63.47%||-77.36%|
|JP Morgan (JPM)||$47.00||3.23%||$61.93||2.60%||31.77%||-19.50%|
|Wells Fargo (WFC)||$34.01||3.64%||$54.45||2.60%||60.10%||-28.57%|
|Financial Sector (XLF)||$33.73||3.00%||$24.68||1.52%||-26.83%||-49.33%|
Dividend cuts were just one reason investors bailed on bank stocks. There was also the fact that the banks helped cause the housing bubble and credit crisis. When the banks fell on hard times, they didn’t suffer. Instead, the government bailed them out with taxpayer funds. And not a single executive was prosecuted for their role. As a result, people hated U.S. banks.
For the last several years, however, the banks have been cleaning up their mistakes. This has meant billions of dollars of legal settlements and fines. Those expenses have been cutting into the profits, and created a great amount of uncertainty for investors.
The Financial Select Sector SPDR ETF (XLF) tracks 87 financial stocks. Its biggest holdings include top U.S. banks. The ETF has been recovering in recent years. But since 2007, it’s greatly underperformed the S&P 500.
Financial Stocks Lose Big
Source: Yahoo! Finance
There are two key reasons to think that 2015 may be a banner year for big banks.
First, banks have resolved most of their outstanding legal issues from the mortgage meltdown. That means write offs and losses should decline. And profits should finally begin to look normal once again.
Second, the Fed is expected to raise interest rates next year. A rising interest rate environment is good for banks, since it will allow them to collect more interest on deposits.
Thus, I’m recommending buying big banks right now. In my Million Dollar Portfolio, my subscribers have already banked a 75% gain on one of America’s best-run banks.
Last month, I issued an alert recommending a second major U.S. bank. With the vast majority of its legal issues in the rearview mirror, the company’s profits should jump in 2015. That alone could send this stock soaring.
For income investors, there is more good news on the horizon. With rising profits, I expect this bank will raise its dividend by at least 175% within the next three years.
When that happens, income investors, mutual funds, and ETFs will jump into this stock. As a result, I expect this stock could nearly double in the next few years.
This new recommendation was just released to my Million Dollar Portfolio subscribers. I also elected to release all of my research in the annual top stocks report from Wyatt Investment Research. The report is called Top 10 Stocks for Big Profits in 2015.
You can get the complete report on my top bank stock…plus nine additional amazing investment ideas for 2015. All you need to do is click here now to claim your free copy of the report.