Is Financial Sector a good buy now?

[M Paquette]

Merrill antics:

There was a really good one in BusinessWeek this week, regarding brokers, their client lists, and competition:

True story: A team of Wall Street brokers, about to defect with their billions in client assets to a higher-paying Swiss rival, broke the news to their boss. Apoplectic, he gave them an hour to clean out their desks, hand in their ID cards, and leave the building with a security escort. Twenty minutes later, suddenly magnanimous, he congratulated them and insisted they all go out to lunch. Life's too short, right?

At a table in the subterranean Champagne cave of a luxe steakhouse, they shared stories over $140 bottles of shiraz. And more shiraz. Hours passed before a team member realized his cell phone wasn't getting a signal; then another noticed his wasn't, either.

They all wobbled outside to check their voice mails, now stuffed with messages from clients weighing counteroffers from the group's former overlords. Frankly, they were having a hard time refusing.

Revenge of the Stockbroker

I'm not sure I'd want to have anything to do with these brokers or their former overlords. I'll just stick with my mess-O-index funds and Boglehead approach.

 

[haha]

There was a really good one in BusinessWeek this week, regarding brokers, their client lists, and competition:


Revenge of the Stockbroker

I'm not sure I'd want to have anything to do with these brokers or their former overlords. I'll just stick with my mess-O-index funds and Boglehead approach.

Great story! When the going gets tough, the tough get clever.

Ha

 

[quietman]

A guy I know to be a very successful investor told me financial bottomed out about 3 months ago. That decision cost him about 60% of what he invested.

I thought the financials bottomed out about a month ago. That cost me about 60% of what I invested.

But maybe you are right and now's the time. Good luck.

Glad I only invested my small slice of Mad Money and the bulk of the portfolio is NEVER invested on a whim.

 

[CitricAcid]

A guy I know to be a very successful investor told me financial bottomed out about 3 months ago. That decision cost him about 60% of what he invested.

I thought the financials bottomed out about a month ago. That cost me about 60% of what I invested.

But maybe you are right and now's the time. Good luck.

Glad I only invested my small slice of Mad Money and the bulk of the portfolio is NEVER invested on a whim.

Financials have NOT gone down 60% in the last month or even 60% in the last 3 months, unless you were heavily loaded up on FNM, WB or who knows what else... trading call options? In any case, the dividend yields right now (if they are sustainable, a big if) could create a temporary bottom, and you are benig paid to wait. Just saying...

 

[FUEGO]

In any case, the dividend yields right now (if they are sustainable, a big if) could create a temporary bottom, and you are benig paid to wait. Just saying...

Dividends were a big part of my rationale to get in financials when I did. When I bought KBE, the trailing twelve months div yield was close to 7%. Hey, I can sit and wait and see what happens for a few years while collecting that! It may get cut some, we'll see. KBE is now yielding closer to 5% (trailing twelve months), so the yield is still juicy, just much riskier since it could get cut some.

Another issue regarding financials is just how much dilution we will see from secondary share offerings that some of the banks are doing to get additional capital.

 

[FIRE'd@51]

KBE is now yielding closer to 5% (trailing twelve months), so the yield is still juicy, just much riskier since it could get cut some.

The trailing 12-month yield is meaningless, since so many banks have recently cut their dividend. I calculate, based on the current dividends of the constituent stocks, that the current yield on the KBE (based on last night's close of 34.47) is about 4.1%.

 

[FUEGO]

The trailing 12-month yield is meaningless, since so many banks have recently cut their dividend. I calculate, based on the current dividends of the constituent stocks, that the current yield on the KBE (based on last night's close of 34.47) is about 4.1%.

Thanks - does that include the recent dividend reductions from some holdings of KBE? And also dividend increases from any holdings of KBE? If so, I'm sort of surprised the yield isn't even lower than 4.1%.

 

[FUEGO]

The trailing 12-month yield is meaningless, since so many banks have recently cut their dividend. I calculate, based on the current dividends of the constituent stocks, that the current yield on the KBE (based on last night's close of 34.47) is about 4.1%.

I went through and looked at almost all the constituent company's quarterly earnings reports and press releases to figure out who's raising dividends and who has slashed them. Then I figured up a yield based on declared dividends and got 4.52% as of 8/6/06 close of business.

Are any of these banks cutting dividends?:
JP MORGAN CHASE CO WELLS FARGO & CO NEW BK OF AMERICA CP CITIGROUP INC US BANCORP STATE STREET CP BB&T CP
All the rest of KBE's holdings I checked the Q2 financial results or latest dividend declarations (mostly from July).

 

[clifp]

I went through and looked at almost all the constituent company's quarterly earnings reports and press releases to figure out who's raising dividends and who has slashed them. Then I figured up a yield based on declared dividends and got 4.52% as of 8/6/06 close of business.

Are any of these banks cutting dividends?:
JP MORGAN CHASE CO WELLS FARGO & CO NEW BK OF AMERICA CP CITIGROUP INC US BANCORP STATE STREET CP BB&T CP
All the rest of KBE's holdings I checked the Q2 financial results or latest dividend declarations (mostly from July).

Here is the dividends of the top 10 holdings of KBE represent 61% of the holdings.
JPM No change
WFC Raised .31 to .34
BAC No change cut still possible
C decreased from .54 to .32 last year
USB no change likely small raise latter this year
SST .23 to .24
BK no change
WB .64 to .375 to .05 latest
NTRS no change
BBT .46 to .47

Dividend yields ranges from just over 1% from state Street and Wachovia to near 8% for BAC and Citi with a bunch in the 5% range so I think the 4.52 seems right.

 

[FIRE'd@51]

Thanks - does that include the recent dividend reductions from some holdings of KBE? And also dividend increases from any holdings of KBE? If so, I'm sort of surprised the yield isn't even lower than 4.1%.

Yes, and yes.

 

[FIRE'd@51]

I went through and looked at almost all the constituent company's quarterly earnings reports and press releases to figure out who's raising dividends and who has slashed them. Then I figured up a yield based on declared dividends and got 4.52% as of 8/6/06 close of business.

Are any of these banks cutting dividends?:
JP MORGAN CHASE CO WELLS FARGO & CO NEW BK OF AMERICA CP CITIGROUP INC US BANCORP STATE STREET CP BB&T CP
All the rest of KBE's holdings I checked the Q2 financial results or latest dividend declarations (mostly from July).

Did you subtract the 0.35% ER. If not, then are results are pretty close.

Here are the annual dividends I used in my calculation:

WFC 1.36
JPM 1.52
BAC 2.56
C 1.28
USB 1.70
NTRS 1.12
WB 0.20
PNC 2.64
STT 0.96
BK 0.96
BBT 1.88
COF 1.50
MTB 2.80
STI 3.08
RF 0.40
CMA 2.64
KEY 0.75
FITB 0.60
PBCT 0.60
ZION 1.72
MI 1.28
WM 0.04
HBAN 0.53
NCC 0.04

 

[FUEGO]

Did you subtract the 0.35% ER. If not, then are results are pretty close.

I came to that conclusion myself this morning! What a silly mistake on my part to not consider the expenses that get pulled right out of the gross income of the fund...

Yes, the dividends I had used matched very closely with the exception C and WFC - one increased and one decreased and I didn't catch those. All others match exactly. So 4.1% yield is pretty much all you get. Although a few of the banks that are paying very little dividends may recover and go back to paying significant dividends in the future, pushing the yield back up.

I'm not a buyer at today's prices (just a holder). But if KBE goes back to the mid- to upper 20's, I might move some more money in to it. Kicking myself for not moving more money into it at 23 when we were playing "how low can you go". Shoulda coulda woulda.