Buy these dividend-paying regional bank stocks, Truist says

CNBC

14-05-2025

Large banks have many advantages over smaller counterparts, but several regional bank stocks remain standouts, according to Truist. Plus, they pay solid dividends. Bank stocks have largely reversed course after sinking on President Donald Trump 's tariff policy announcement in early April. The SPDR S & P Regional Banking ETF has seen four consecutive weeks of gains and is up about 5% so far this week. Yet the ETF is still down nearly 2% year to date. KRE YTD mountain SPDR S & P Regional Banking ETF in 2025. In this environment, Truist is being selective when it comes to small- and mid-cap (SMID) banks. "Amidst the uncertain macro backdrop, we favor a mix of names with outsize[d] organic growth opportunities driven by differentiated business models and/or footprint, potential to be disciplined participants in an eventual M & A revival, and leverage to positive cyclical trends as balance sheets turn over," a team of analysts led by David Smith wrote in a note on Monday. Since SMID-cap banks rely on customer relationships within a smaller geographic footprint, investors can look at differing economic conditions across the country, the analysts said. Here are four names Truist rates a buy, one in each geographic region. Old National Bancorp , in the Midwest, has a 2.49% dividend yield. The Evansville, Indiana-based bank recently closed its merger with Bremer Financial, expanding its footprint into new markets across Minnesota, Wisconsin and North Dakota, analyst Brian Foran said. "The bank has a good track record on meeting and beating targets of previous large deals, and we see a path of maintaining mid-to-high teens [return on tangible common equity] and getting efficiency ratio below 50s, with more than 20% EPS accretion in 2026 generated from Bremer integration," he wrote. Shares are up 4% so far this year. Foran's $26 price target suggests nearly 16% upside from Tuesday's close. In the Northeast, Webster Financial is one bank that Smith likes. He has a price target of $61 on the stock, implying 15% upside. Headquartered in Stamford, Conn., the bank's footprint spans from New York to Massachusetts, he noted. It is one of the more profitable in his research universe, with its efficient operations and low-cost, diversified funding base, he said. "Webster also boasts some niche lending businesses and high capital levels, though we expect more focus on organic growth or buybacks near term," Smith wrote. "Although higher [commercial real estate] concentration and slower growth markets are concerns, we view them as offering diversification and see a compelling valuation." The stock yields 3.03% and has lost 3% year to date. With Synovus Financial , investors get a dividend equal to a current yield of 3.15%. The bank, headquartered in Columbus, Georgia, is in the middle innings of a self-improvement journey, analyst John McDonald said. It has an attractive footprint across five states in the Southeast, with 70% of its markets in high growth areas, he said. "The bank has streamlined its structure and slimmed exposures, and is now executing on organic expansion while delivering more consistent credit quality," McDonald wrote. "Stock trades at a valuation discount, and current profitability/franchise value offers an opportunity to shed legacy perceptions through consistent execution." He has a $56 price target on Synovus, suggesting it can move 13% above Tuesday's close. Synovus Financial is down 3% so far this year. Lastly, Western Alliance Bancorp , whose dividend equals a 1.91% dividend yield, is one of the fastest growing banks based on internal growth rather than mergers and acqusitions, Smith said. Headquartered in Phoenix, Western Alliance has shifted from a real-estate heavy, community bank to a diversified commercial bank with numerous niche businesses that provide attractive profit margins, he noted. "While above-average CRE and office concentration, coupled with a poor [global financial crisis] loan loss performance, give some investors concern on credit, WAL has transformed its balance sheet," Smith wrote. "Following a considerable liquidity & capital build after the bank was caught up in the March Madness of '23 that saw its industry-leading returns dip, Western Alliance is poised to once again be among the more profitable midsize banks." Truist's 12-month price target of $92 suggests 15.5% upside from Tuesday's close. The stock has slipped 4% year to date.