Every now and then, the stock market overreacts. Investors sell stocks because of fear, and solid businesses are mispriced. Savvy investors take advantage, which is what you should do with PNC Financial Services Group (PNC), suggests Prakash Kolli, editor of Dividend Power.
Warren Buffett’s net worth has grown to over $100 billion by purchasing mispriced stocks and waiting. Also, Buffett is seemingly a fan of bank stocks. His investment vehicle, Berkshire Hathaway, owns Bank of America (BAC), The Bank of New York Mellon (BK), U.S. Bancorp (USB), American Express (AXP), and Ally Financial (ALLY).
Buffett’s investment size limitations probably keep him from buying smaller regional and community banks. But retail investors can take advantage of the recent failure of two regional banks and market fears by targeting stocks like PNC.
The firm was founded in 1845 in Pittsburgh. Today, it has a presence in many states, but its retail branch network is concentrated in the Midwest and mid-Atlantic states.
PNC operates through retail banking, corporate & institutional segments, and it also has an asset management group. It has over 2,600 branches and 9,500 ATMs.
At the end of Q1 2023, PNC had $325.5 billion in loans, $436.2 billion in deposits, and $562.3 billion in assets. According to Federal Reserve statistics, it is the sixth largest bank by assets in the US. PNC has a strong capital position based on its Basel III regulatory ratios. Furthermore, credit quality is strong, with net charge-offs at 0.24% and non-performing loans at 0.62%.
Banking sector worries have caused the share price to drop nearly 22% this year. Hence, the dividend yield has risen to almost 4.8%, nearly as high as during the COVID-19 pandemic bear market. Also, this value is about 1.6 percentage points more than the 5-year average.
Besides the yield, PNC’s dividend growth rate is attractive. The firm is a Dividend Contender with 13 years of growth. It has increased the dividend at a 14% CAGR in the last decade. Moreover, the payout ratio is only around 41%, providing confidence about dividend safety and future increases. In addition, it receives a dividend quality grade of B+.
PNC is undervalued based on the historical price-to-earnings ratio (P/E ratio). It trades at a P/E ratio of ~9.0X, less than the 5-year and 10-year ranges. Hence, PNC is a solid pick for investors seeking income and potential capital appreciation.
Recommended Action: Buy PNC.
