Truist Financial 7% Dividend: A Shocking Buy (NYSE:TFC) (2023)

Truist Financial 7% Dividend: A Shocking Buy (NYSE:TFC) (1)


I'm not saying anything new when I say bank stocks are in a tough spot. The regional bank ETF (CABINET) has lost a third of its value since the beginning of this year, making it the worst liquidatorsince the pandemic hit the markets in 2020.

Truist Financial 7% Dividend: A Shocking Buy (NYSE:TFC) (2)

Although this liquidation is no fun for existing positions like my investment in Huntington Bancshares (HBAN), which I bought dirt cheap in 2020, is one of many options to add high-quality regional banks if that's what investors are looking for.

I have often argued that there is no need to own regional banks. Investors can achieve good returns in other areas. Buying regional banks is a bit like picking pennies from a steam drum: regional banks tend to liquidate quite violently whenever the economy takes decline.

Truist Financial 7% Dividend: A Shocking Buy (NYSE:TFC) (3)

The good news is that the market tends to throw the baby out with the bathwater, opening up new opportunities for income-seeking investors seeking undervalued bank exposure.

Therefore, in this article I focus onTruist Financial Corp. (NYSE:TFC), one of the best regional banks on the market. While the share price suffers, its core business remains strong. Considering its profitability and its valuation, I believe that TFC is one of the banks that justify new investments in times of need.

zero trust

I bought Huntington Bancshares, my only bank holding, in 2020 for about $9 a share. stock. He had always planned to take advantage of market declines to buy additional shares in the event of a downturn. However, I did not expect to be able to buy more shares at the same price again.

As perfectly summed up byWall Street Journal, banks are in the grip of investor confidence, which has completely evaporated.

Basically, the recent decline in the share prices of regional US banks has raised concerns about the health of the banking system. The crisis began to gather momentum with the seizure and sale of First Republic Bank to JPMorgan (JPM), which was expected to be a tumultuous moment for US banks, signaling the end of the latest crisis of confidence in the financial system. The relief was short-lived, however, as regional bank stocks fell, with the KBW Nasdaq Regional Bank Index down 15% from the previous week by one point.

The problem is a combination of headwinds, including an aggressive bullish cycle that has pushed short-term bond yields to levels that make it unattractive to leave money in the bank.

The annual interest rate on the 3-month treasury is now 5.3%.

This was also pointed out by the aforementioned WSJ article, which argues that optimism about the recovery of bank portfolios fails to take into account the inherent fragility of deposits. If a bank, like Silicon Valley Bank or First Republic, could face a deadly tidal wave of withdrawals from accounts lacking deposit insurance, it could quickly become a dangerous trend.

Controlling the vicious cycle that follows can be a challenging task. Investors are worried about banks for a number of reasons, including the tendency of vehicles like money market funds to pass on high interest rates to customers, as well as regulatory reforms enacted after the 2008 financial crisis that were primarily aimed at the risk of megabank failures, making other banks stand out weaker in comparison.

In this case, it also doesn't help that the banks that got into trouble were terribly mismanaged, which was highlighted byWarren Buffett:

Buffett singled out First Republic Bank, the troubled lender that JPMorgan Chase & Co. just saved. Filings from First Republic showed the lender offered giant, non-government-backed mortgages at fixed rates that were in some cases amortized for 10 years, in what Buffett called "a crazy proposition."

That said, I think strong banks offer opportunities, although I don't expect a sudden and sharp recovery. The Fed is forced to keep interest rates high, which will continue to weigh on deposits. Even if the market calms down, that would not make banks a high conviction investment.

Based on this context, North Carolina-based Truist Financial is on my watch list, as I believe it is a no-nonsense bank with good management and the ability to create tremendous shareholder value over the long term, especially given the current approval.

Truist Financial remains rock solid

With a market capitalization of approximately $35 billion, Truist Financial is the third largest regional bank in the United States. The company has more than $570 billion in assets, more than 2,100 branches, more than 50,000 employees and 15 million customers in the Midwest, Northeast and South.

Although the company's share price has suffered, it appears to be a case of low tide that sinks all ships.

The fact is that Truist has done very well. As reported byBloomberg, regional banks such as Truist Financial Corp., Fifth Third Bancorp (FITB) and Huntington Bancshares reported steady deposits in the first quarter of this year despite the impact of three lenders' collapse in March.

Truist's deposits were recorded at $408 billion per March 31, which is slightly lower than the $411 billion forecast by analysts tracked by Bloomberg.

However, this is stable and does not indicate a problem.

"In a challenging and unique quarter for the banking industry, Truist demonstrated strength," Truist CEO Bill Rogers said in the statement.

Truist Financial 7% Dividend: A Shocking Buy (NYSE:TFC) (8)

In the first quarter, Truist reported a 6% year-over-year increase in net income, but EPS fell 13% Qoq, primarily due to lower net interest income and seasonality. Adjusted PPNR (net income before provisions) decreased 7% sequentially due to lower net interest income and slightly higher than expected expenses, but compared to 1Q22, adjusted PPNR grew 19%.

Additionally, asset quality remained strong and net write-offs continued to normalize. The bank's ALLL (provisions for loan and leasing losses) increased by three basis points to reflect a more uncertain economic environment. While it makes sense to account for greater economic uncertainty, there is no evidence that loan quality is in a bad place. Non-performing loans remain moderate at 0.36% of total investment loans.

In addition, the company has become even more cautious in its view of CRE (commercial real estate) fundamentals and is tightening credit and reducing its risk appetite in select areas, while maintaining its long-term focus on forecasts in an environment of increasing risk.

On a side note, if you want to know more about risks in commercial real estate, feel free to read onthe article I wrotein this last month.

Additionally, in terms of CRE, the company reported a 2.2% decline in its CRE portfolio from 2019 to 2022 due to its focus on diversification and disciplined risk management. The company carefully evaluated its various portfolios during the integration process to become Truist to ensure it understood the combined risk profile and how it would manage them going forward.

Truist's disciplined approach to CRE is reflected in its asset quality values, which remain strong, and it maintains a high-quality CRE portfolio through careful client selection. The office segment represented 1.6% of Truist's loan book, which tends to skew toward Class A properties within its footprint. The company's exposure tends to be large CREs with strong institutional sponsorship and has reduced exposure to smaller CREs.

In addition, the company's own CET1 percentage has improved to 9.1%, as the company has a satisfactory capital position.

What about dividends and valuation?

Truist pays a dividend of $0.52 per share per quarter. This equates to $2.08 per year. The dividend yield is 7.2 per cent.

On July 26, management increased that dividend by 8.3% from $0.48.

The dividend has a payout ratio of 45%, which is safe, but slightly above the industry median of 34%.

under hisearnings call, management briefly commented on its dividend after being asked what its plans for dividend growth were (emphasis added):

we're in capital building mode right now until we're not. So we want to really understand the landscape, understand the regulatory landscape, be prepared. We have 20 basis points or so of organic capital formation coming into play. That is our dividend.Our dividend will continue to be important to us and we will continue to support our dividend..

While it is difficult to estimate what dividend growth will look like this year, the fact that TFC is yielding over 7% makes the risk/reward ratio very attractive. I don't expect a dividend cut unless the economy implodes, similar to what we witnessed during the Great Financial Crisis.

Not only is its 7.2% yield attractive, but the company also trades at an attractive price.

The company is trading at 1.7 times its tangible book value, the lowest valuation since the initial recovery from the pandemic and the nadir of the 2016 manufacturing recession.

Truist Financial 7% Dividend: A Shocking Buy (NYSE:TFC) (12)

While none of this guarantees that TFC is bottoming out (the market can stay irrational longer than reckless investors can stay liquid), I think we're dealing with a good risk-to-return ratio.

The consensus price target is $42. The latestanalyst ratingsthey were all upgrades with price targets between $45 and $53.

Truist Financial 7% Dividend: A Shocking Buy (NYSE:TFC) (13)

Especially when the economy starts to grow again, I'm sure TFC will hit new heights.

However, investors interested in buying TFC should be cautious. If I added bank exposure (in addition to expanding my HBAN position) I would be an incremental buyer. If the stock falls further, it may fall on average. If the stocks suddenly took off, I would have my foot in.


In this article we discuss the banking crisis and one of the best regional banks on the market. Although TFC is under pressure from high short-term interest rates and rapidly declining confidence, its business continues to perform well. It has minimal exposure to commercial real estate, its deposits remain strong and its lending quality remains very satisfactory.

Although uncertainty continues to dominate the market, I believe TFC offers tremendous potential in the long term. It has a solid 7% yield, an attractive valuation and a business model that makes a quick recovery likely when economic demand bottoms out.

It goes without saying that since the economy is not out of the woods yet, investors should be cautious when dealing with banks.

This article was written by

leo nelissen




Welcome to my Seeking Alpha profile! I am a buy-side financial market analyst specializing in dividend opportunities, with a strong focus on larger economic developments related to supply chains, infrastructure and commodities. My articles provide insightful analysis and actionable investment ideas with particular emphasis on dividend growth opportunities. My goal is to keep you informed about the latest macroeconomic trends and significant market developments through engaging content. Feel free to contact me via direct message or find me on Twitter (@Growth_Value_) for more information. Thanks for visiting my profile!

Analyst Disclosure: I/we have an advantageous long position in the shares in HBAN, whether through share ownership, options or other derivatives. I wrote this article myself and it expresses my own opinions. I do not receive compensation for it (other than Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha Disclosure:Past results are not a guarantee of future results. No recommendation or advice is given as to whether an investment is suitable for a particular investor. Views or opinions expressed above may not reflect Seeking Alphas as a whole. Seeking Alpha is not a US licensed securities dealer, broker or investment adviser or investment bank. Our analysts are third-party authors, including both professional investors and individual investors, who may not be licensed or certified by an institution or regulator.

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