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small piggy banks outweigh big piggy bank

News

When It Comes to Banks, Think Small

Aaron Levitt May 09, 2017


When it comes to the financial sector, we have a big time bias. For many investors, the name of the game and what dominates our portfolios are the biggest of the big. We’re talking about the JP Morgans (JPM ), the Bank of Americas (BAC ) and the Goldman Sachs (GS ) of the world. The ‘too big to fail’ firms.

And there is nothing inherently wrong with placing our bets on BAC or its similarly sized rivals. After all, the biggest financial firms’ commanding presence have provided them with economies of scale and asset bases more substantial than the GDP of some countries.

But in reality, this is one instance where thinking smaller could be a better bet.

While not as well known, America’s regional and community banks could offer dividend investors a better bet and potentially greater dividend growth over the long haul.

Community Minded, Just Like You!

It’s no secret that financial firms of all stripes have enjoyed a significant run-up over the last year. On the one hand, the Federal Reserve has been more than accommodating. After years of keeping interest rates at zero, the Fed has continued to ratchet up benchmark rates as the economy has improved. That’s contributed to improving net interest and float profits. On the other hand, the election of Donald Trump has given the sector hope that various pieces of legislation enacted during the financial crisis will be removed.

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