The Motley Fool

2 dividend paying banking stocks to combat inflation in 2022

Business man on stock market crash financial trade indicator background.
Image source: Getty Images

Last week, Joe Biden announced that he would nominate current US Federal Reserve (Fed) Chair Jay Powell for a second term. His most pressing concern will be to stop the onset of hyperinflation. Inflation, which is the general rise in price levels due to the increase of monetary supply, has taken off in recent months. This can be bad news for us stock investors. Warren Buffett has said there is no greater destroyer of wealth than inflation. Right now the Fed is indicating that in order to curb inflation, which is running in excess of 6%, it will taper its purchases of US treasury securities. This and the increase of interest rates in 2022 are the options available to Powell and his team at the Fed. It remains to be seen how soon and how effective these interventions will be in preventing all-out carnage on investor returns.

There are, however, certain types of businesses that can survive and even do well in this environment. I recently wrote an about a UK stock that I think will do well in this inflationary environment. I believe the following two banking stocks are in that same mould. Why banks? Well, they benefit from higher interest rates because it affords them higher yields on the cash they hold on behalf of customers.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

A Buffett-backed banking stock

First up is Bank of America (NYSE: BAC). When Buffett sunk $5bn into this banking stock in 2011, it was a vote of confidence in the leadership of CEO Brian Moynihan and that bet has not let Buffett down. Bank of America has arguably the best consumer banking brand in the US. Its industry-leading wealth management platforms function well with Merrill Lynch and it has made the necessary technology investments to be award-winning in that space. It is one of the ‘Big Three’ US banks, which attract 50% of all new checking accounts. With a current price-to-earnings ratio of 13.86 and a price-to-book ratio of 1.52, I think this banking stock is trading at a discount.

A bank for the ages 

Fun fact: US Bancorp (NYSE: USB) operates under the second-longest continuous banking charter in US history and is currently the fifth-largest banking institution in the US. Fun aside, this stock is also a staple in the value matrix of many hedge funds. Its 3.12% dividend yield is attractive to me. With $568bn in assets, this bank is not only large but very efficient. It has trended upward with an average increase of 9% over the past 10 years. As a banking stock, it excels not only due to its size and efficiency but is expanding rapidly. It recently acquired MUFG Union Bank for $8bn and just announced plans to acquire fintech firm Travel Bank.

Banks are of course subject to various systemic risks – the 2008 crisis proved this. And all banks are dependent in part on central banks for their cues. Right now the main threat is that the Fed fails to control inflation. Inflation allows borrowers to pay back lenders with money that is worth less than what they originally borrowed. Inflation in excess of 6%, combined with the Biden administration’s plan to increase the corporate tax rate by at least 5%, could mean a pretty steep hurdle rate for banking investors to make good returns in the future.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Stephen Bhasera has no position in any of the shares mentioned. Bank of America is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

 

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.