Buy this dividend share today and relax

Banks are emerging from a strong 2021 and could be in line for continued growth in 2022 and beyond, given expectations of economic expansion and rising interest rates. One bank in particular that appears poised for growth is PNC Financial Services (NYSE: PNC).

PNC made a major acquisition in the third quarter of 2021 that turns it into one of the six largest banks in the United States. It also pays a large dividend, so if you are a dividend investor, this is a good move to consider.

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A rising dividend that earns $ 5 per share

Bank stocks rebounded strongly in 2021 after a catastrophic 2020 when they were hit hard during COVID-19 lockdowns. The economy practically came to a halt, lending activity slowed, and banks were forced to make huge allowances for expected credit losses. The Federal Reserve has demanded that banks pause to raise dividends or buy back shares.

PNC was able to stay on course for its dividend in 2020, paying $ 1.15 per share each quarter throughout the year. In 2021, when the Fed lifted the mandate, PNC increased its third-quarter dividend to $ 1.25 per share and maintained that payment. On January 5, PNC declared a dividend of $ 1.25 per share for the first quarter of 2022.

The company is now on track to pay an annual dividend of $ 5.00 per share, which would be the 12th consecutive year of annual dividend increases.

Trading at around $ 223 per share, the stock has a dividend yield of 2.23%, which exceeds the median dividend yield on the S&P 500 1.5%. PNC has a payout rate of 38.2%, which is roughly in line with its historical average. The payout ratio is the percentage of profits used to pay dividends, and anything below 50% is generally considered a fairly comfortable range. You don’t want a company to pay too much dividends at the expense of other investments.

The PNC share price jumped 38.2% in 2021, which was slightly above the industry average. This year, until January 10, it is already up 11%.

Become national with the acquisition

One of the forces that drove PNC’s success in 2021 was its acquisition of the US banking operations of BBVA (Banco Bilbao Vizcaya Argentaria). BBVA USA contributed approximately $ 87 billion in assets to PNC, which had approximately $ 462 billion at the end of the third quarter. The deal gives PNC a total of around $ 550 billion in assets, which could push it ahead Sad as America’s sixth bank.

The purchase also attracted 2.6 million customers and added nearly 600 branches in seven states for PNC in Texas, Alabama, Arizona, California, Florida, Colorado and New Mexico. In addition, it gives the bank a national footprint, with 2,700 branches and 19,000 ATMs in 29 of the country’s 30 largest markets. There are only a handful of other banks with that kind of scale and national presence.

The merger is expected to result in at least $ 900 million in cost savings once BBVA USA is fully integrated with PNC. In the third quarter, revenue grew 11% to $ 5.2 billion, while net income rose 35% to $ 1.5 billion, with gains from both interest income (11%) and commission income (12%) year over year. The book value, or asset minus liabilities, is $ 121 per share, down from $ 117 a year ago. The efficiency ratio is higher at 69%, from 59%, but that includes $ 980 million in merger integration costs. This should start to go down as BBVA is integrated and cost savings are realized.

PNC is starting to see an increase in lending activity, both commercial and consumer, with total lending up 16% year-over-year to $ 290.2 billion.

This trend is expected to continue in 2022, stimulated by historic federal investment in infrastructure. Additionally, the Fed is expected to hike interest rates in 2022 at least once, maybe more, which should give the PNC a further boost, as well as any banks that deal in interest rates. 0% interest since the start of the pandemic.

The PNC is in a privileged position to develop, given the macroeconomic environment and its own expansion. Its dividend should continue to grow with it.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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