Should You Retain Comerica (CMA) for Its 6.49% Dividend Yield?
The banking sector is facing challenges amid the current operating backdrop, with expectations of an economic slowdown in the near term. Hence, given these uncertainties, solid dividend-yielding stocks should be on investors’ radar. Today, we are discussing one such stock, Comerica Incorporated CMA.
This Dallas, TX-based banking and financial services company delivers financial services in three primary geographic markets — Texas, California and Michigan — as well as Arizona and Florida.
CMA has been paying its quarterly dividends on a regular basis and raising the same. The last hike of 4.4% to 71 cents per share was announced in February 2023. Over the past five years, it increased dividends thrice, with an annualized dividend growth rate of 1.6%.
Considering the Nov 24 closing price of $43.76 per share, CMA’s current dividend yield is 6.49%. This is impressive compared with the industry’s average of 4.14% and attracts investors as it represents a steady income stream.
Comerica Incorporated Dividend Yield (TTM)
Comerica Incorporated dividend-yield-ttm | Comerica Incorporated Quote
Is Comerica stock worth a look to earn a high dividend yield? Let’s check the company’s fundamentals to understand its risks and rewards for making a proper investment decision.
Other than dividend payouts, CMA also has a share repurchase plan in place. Since the inception of Comerica’s share repurchase program in 2010, it has been authorized to repurchase 97.2 million shares. As of Sep 30, 2023, approximately five million shares remain under the current authorization. While share repurchase activity remains suspended to accrete capital, it is expected to resume with stability in the banking sector and greater visibility on the new capital requirements.
As of Sep 30, 2023, the company’s total debt (comprising short-term borrowings and medium and long-term debt) was pegged at $10.86 billion while total liquidity capacity was $45.1 billion. This offers it decent financial flexibility and makes the debt repayments seem manageable. Given its decent liquidity, dividend payments seem sustainable.
We remain optimistic about Comerica’s income-generation capability, given its loan growth. The metric witnessed a five-year compound annual growth rate of 0.9% (ended 2022), with the momentum continuing in the first nine months of 2023. Given the strength in its loan pipeline, a similar trend is expected to continue in the near term. Management expects average loans to grow 7% in 2023.
With expectations of the Federal Reserve keeping interest rates high in the near term, CMA’s net interest income (NII) is expected to witness decent growth. In fact, management expects NII to increase 1-2% reflecting the impact of loan growth, partially offset by the impact of higher funding costs.
However, rising expenses are likely to hinder bottom-line growth in the near term. Also, a concentrated geographical footprint and substantial exposure to commercial loans may hurt amid an uncertain economy and competitive markets.
Over the past six months, shares of CMA have gained 12.2% compared with the industry’s rise of 8.2%.
Image Source: Zacks Investment Research
CMA currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Bank Stocks With Attractive Dividend Yields
Banking stocks like Premier Financial PFC and KeyCorp KEY are worth a look as these, too, have robust dividend yields.
Considering the Oct 22 closing price, PFC’s dividend yield is pegged at 6.13%. In the past six months, shares of PFC have gained 40.8%.
Based on the last day’s closing price, KeyCorp’s dividend yield is pinned at 6.81%. In the past six months, shares of KEY have gained 19%.
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