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Should You Watch Truist (TFC) to Earn Solid Dividend Yield?
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This year is turning out to be better for banks than 2023. Clarity on the Federal Reserve’s rate path and higher chances of a soft landing of the U.S. economy have turned investors bullish on the banking sector.
Hence, keeping an eye on fundamentally solid lenders that also have impressive dividend yields will be wise now. One such bank is Truist Financial (TFC - Free Report) . This Charlotte, NC-based bank, formed in late 2018 following the merger between BB&T Corp and SunTrust Banks, is one of the largest commercial banks in the country.
Since 2022, TFC has been paying 52 cents per share as a quarterly dividend. Over the last five-year period, it raised the dividend thrice, with an annualized dividend growth rate of 5.24%.
Considering last day’s closing price of $34.93, Truist’s dividend yield currently stands at 5.96%. This is impressive compared with the industry average of 3.81% and attractive for income investors as it represents a steady income stream.
Before making any investment decision, let’s check out the company fundamentals to understand risk and rewards.
Truist has been restructuring its business to focus on its core operations. In sync with this, last month, the company announced agreements to divest the remaining 80% stake in its insurance subsidiary — Truist Insurance Holdings (“TIH”) — and asset-management subsidiary, Sterling Capital Management LLC.
Nonetheless, the announcement of a stake in TIH triggered reactions from Fitch Ratings and Moody's Investors Service – a division of Moody’s Corporation (MCO - Free Report) . Fitch lowered the company’s Long-Term Issuer Default Rating, while Moody’s placed the long-term ratings on review for downgrade. Both the rating agencies underscored reduced diversification and increased earnings volatility post-sale.
Further, TFC is reshaping its balance sheet, having sold a $415 million student loan portfolio to Carlyle (CG - Free Report) in January. "There is an opportunity for private markets to fill the gap left by traditional lenders reducing their lending to families to finance their higher education goals," said Akhil Bansal, managing director and head of credit strategic solutions at CG.
The bank has been implementing various other steps since the third quarter of 2023, including a $750-million cost-cutting program, a 4% reduction in workforce, the consolidation of business lines and the creation of an enterprise-wide payments group. These are expected to result in cost savings, with the company projecting adjusted non-interest expenses to be relatively stable or rise nearly 1% this year. In 2023, adjusted expenses increased 6.9%.
Truist has been recording a rise in net interest income (NII). While the metric declined in 2021, it witnessed a five-year CAGR of 16.9% (ended 2023) on the back of decent loan demand, the merger deal and higher rates. While high interest rates are expected to continue aiding NII, gradually waning loan demand and a rise in deposit costs will weigh heavily on it. Though we expect NII to decline 2.6% in 2024, the metric is projected to rise 2.4% and 2.5% in 2025 and 2026, respectively.
Further, TFC remains focused on the growth of non-interest revenue sources. While the metric declined in 2022, it witnessed a five-year (2018-2023) CAGR of 12.5%, mainly on the back of the merger deal and strength in wealth management and insurance businesses. Management has dialed back on insurance and asset management operations as part of the business restructuring plan, which will hurt fee income in the near term. While we expect total non-interest income to decline 2.3% in 2024, the metric is expected to rise 1.7% in 2025.
So, despite near-term headwinds like weak asset quality, elevated costs and lower revenue diversification, TFC is well-placed to counter the challenges and maintain profitability. In the past six months, shares of Truist Financial have rallied 23.2% compared with the industry’s jump of 26.8%.
Image: Bigstock
Should You Watch Truist (TFC) to Earn Solid Dividend Yield?
This year is turning out to be better for banks than 2023. Clarity on the Federal Reserve’s rate path and higher chances of a soft landing of the U.S. economy have turned investors bullish on the banking sector.
Hence, keeping an eye on fundamentally solid lenders that also have impressive dividend yields will be wise now. One such bank is Truist Financial (TFC - Free Report) . This Charlotte, NC-based bank, formed in late 2018 following the merger between BB&T Corp and SunTrust Banks, is one of the largest commercial banks in the country.
Since 2022, TFC has been paying 52 cents per share as a quarterly dividend. Over the last five-year period, it raised the dividend thrice, with an annualized dividend growth rate of 5.24%.
Considering last day’s closing price of $34.93, Truist’s dividend yield currently stands at 5.96%. This is impressive compared with the industry average of 3.81% and attractive for income investors as it represents a steady income stream.
Truist Financial Corporation Dividend Yield (TTM)
Truist Financial Corporation dividend-yield-ttm | Truist Financial Corporation Quote
Before making any investment decision, let’s check out the company fundamentals to understand risk and rewards.
Truist has been restructuring its business to focus on its core operations. In sync with this, last month, the company announced agreements to divest the remaining 80% stake in its insurance subsidiary — Truist Insurance Holdings (“TIH”) — and asset-management subsidiary, Sterling Capital Management LLC.
Nonetheless, the announcement of a stake in TIH triggered reactions from Fitch Ratings and Moody's Investors Service – a division of Moody’s Corporation (MCO - Free Report) . Fitch lowered the company’s Long-Term Issuer Default Rating, while Moody’s placed the long-term ratings on review for downgrade. Both the rating agencies underscored reduced diversification and increased earnings volatility post-sale.
Further, TFC is reshaping its balance sheet, having sold a $415 million student loan portfolio to Carlyle (CG - Free Report) in January. "There is an opportunity for private markets to fill the gap left by traditional lenders reducing their lending to families to finance their higher education goals," said Akhil Bansal, managing director and head of credit strategic solutions at CG.
The bank has been implementing various other steps since the third quarter of 2023, including a $750-million cost-cutting program, a 4% reduction in workforce, the consolidation of business lines and the creation of an enterprise-wide payments group. These are expected to result in cost savings, with the company projecting adjusted non-interest expenses to be relatively stable or rise nearly 1% this year. In 2023, adjusted expenses increased 6.9%.
Truist has been recording a rise in net interest income (NII). While the metric declined in 2021, it witnessed a five-year CAGR of 16.9% (ended 2023) on the back of decent loan demand, the merger deal and higher rates. While high interest rates are expected to continue aiding NII, gradually waning loan demand and a rise in deposit costs will weigh heavily on it. Though we expect NII to decline 2.6% in 2024, the metric is projected to rise 2.4% and 2.5% in 2025 and 2026, respectively.
Further, TFC remains focused on the growth of non-interest revenue sources. While the metric declined in 2022, it witnessed a five-year (2018-2023) CAGR of 12.5%, mainly on the back of the merger deal and strength in wealth management and insurance businesses. Management has dialed back on insurance and asset management operations as part of the business restructuring plan, which will hurt fee income in the near term. While we expect total non-interest income to decline 2.3% in 2024, the metric is expected to rise 1.7% in 2025.
So, despite near-term headwinds like weak asset quality, elevated costs and lower revenue diversification, TFC is well-placed to counter the challenges and maintain profitability. In the past six months, shares of Truist Financial have rallied 23.2% compared with the industry’s jump of 26.8%.
Image Source: Zacks Investment Research
Therefore, income investors should keep this Zacks Rank #3 (Hold) stock on their radar as it will help generate robust returns over time. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.