What Makes a Bank Stock Worth Owning for Decades

Yahoo Finance ·

A small portion of society lacks a banking relationship, which makes it very difficult to operate in the modern world. Most people have at least one banking relationship, if not more. The economy simply wouldn't function without a place for consumers to put cash or a way for them to get loans. And that doesn't even get into the business-related services banks provide. Most investors should have some exposure to the banking sector. However, not all banks are created equally. You need to tread with care, focusing on financially strong banks that have proven they know how to reward investors with reliable dividends in good times and bad. Here are some banks to consider today. Some of the most iconic U.S. banks got caught up in the housing crisis that precipitated the Great Recession. The list includes Bank of America ( BAC +0.46% ) , Citigroup ( C 0.11% ) , and Wells Fargo ( WFC 0.50% ) . (Some once notable U.S. banks didn't survive the crisis, having taken on too many risky mortgages.) All three cut their dividends. Wells Fargo also found itself caught up in a business scandal that exposed internal operating weaknesses (accounts being created without customer consent). It cut its dividend again in the early 2000s. These aren't bad banks. And it wouldn't be a mistake to buy any of them. But you can probably do better. For example, Goldman Sachs ( GS +0.14% ) had a dividend blip in the Great Recession, but for the most part, it survived that difficult period in relative stride. It has many of the attributes an investor should look for in a bank, offering investment and asset management services, among others. However, it appears expensive right now with a 2.9x price-to-book ratio. That's well above the 1.4x five-year average. The dividend yield is a fairly modest 1.8%.

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