Bank stocks could benefit from Fed rate cuts. These dividend-payers are Wall Street’s favorites
Investors seeking potential capital appreciation and dividend payouts may want to look to bank stocks. A recent analysis by Wells Fargo found that when the Federal Reserve cuts rates and there is no recession, bank stocks have historically rallied. The central bank resumed its easing cycle last week, decreasing the federal funds rate by 25 basis points, or 0.25 percentage point. However, that outperformance happened in the first three months after the first rate decrease, the firm noted. Many bank names also pay income. Dividend stocks could see a pickup in investor interest as higher-yielding names begin to look relatively more attractive as cash and fixed income yields fall. KBWB 1Y mountain Invesco KBW Bank ETF Hedge funds were among those who piled into bank stocks after the Fed’s cut. Matt Quinlan, portfolio manager at Franklin Templeton, also sees some opportunities in the sector. Banks that have business in capital markets are benefiting from an increase in activity, he said. Plus, banks should gain from a pickup in business activity as rates come down, he noted. The industry should also benefit from the deregulation expected from the Trump administration, added Quinlan, lead portfolio manager on the Franklin Equity Income Fund (FISEX) . “The credit part of banks and financial companies is holding in there and should hold in there well, and then we’re also seeing some really good dividend growth,” he said. To find bank stocks that pay solid dividends above the S & P 500 and are liked by analysts, CNBC Pro on Friday screened for names in the Invesco KBW Bank ETF that have a dividend yield of 2% or more and are rated a buy from 55% or more of the analysts covering the stocks. The S & P 500 currently yields 1.1%. Huntington Bancshares has a 3.5% dividend yield and is up about 6.5% year to date. The stock is rated a buy by 64% of analysts covering it and it has nearly 13% upside to the average price target, according to FactSet. In July, the regional bank, headquartered in Ohio, reported a second-quarter earnings beat. The same month Huntington announced it reached a deal to acquire Texas-based bank Veritex . Citizens Financial Group is the most loved in the group, with 68% of analysts covering the stock giving it a buy rating, per FactSet. It has about 8% upside to the average price target, according to the financial digital platform. Citizen Financial’s second-quarter earnings and revenue both exceeded Wall Street’s expectations when the company reported in July. The stock yields 3.1% and has gained 21% so far this year. The two big banks on the list, Citigroup and Bank of America , both have yields above 2% and about 60% of the analysts covering the stocks rating them a buy. Wells Fargo analyst Mike Mayo is among those who is bullish on the names, although Citi is his top pick. In fact, he likes all five big banks, which also includes JPMorgan , Goldman Sachs and Morgan Stanley . “Stay on course with ‘Goliath is Winning,'” Mayo said in a note last week. The big banks “benefit from scale, deregulation, and esp. capital markets that seem stronger than previously expected.” Citi has 2% upside to the average price target, according to FactSet, after already rallying 46% year to date. Bank of America has gained 18% so far this year and has 5% upside to the average price target, per FactSet. (Learn the best 2026 strategies from inside the NYSE with Josh Brown and others at CNBC PRO Live. Tickets and info here .)
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