Buying Your Bank Stock: Good Move or Bad Idea?

by Kristina on August 2, 2012 · 3 comments

stock tickers

Good Morning DINKS.  There is an old saying that says we shouldn’t s#*t where we eat. In a less vulgar way it means that we shouldn`t get rid our garbage in the same place where we also profit from the good things in life, or it can also mean that we shouldn`t mix the bad things in our lives with the good things. Regardless of how we each interpret the phrase I believe that the message is clear, don’t do everything in the same place. On a sort of similar note I want to know if you would you invest in the stocks of the bank where you also have your personal banking business, or is that sort of double dipping?

It is said by many investment professionals that we should not have all of our eggs in one basket, does confiding in our bank as our financial institution as well as owning stocks of that same bank count as having all of our eggs in one basket?  If ever something bad happens and our bank ends up going bankrupt we can lose our money from the banking relationship and we can also lose our money from investing in their stock.

If banks are not making any profits they may cut back on their staff and they may close bank branches.  This will greatly impact the level of service from your bank; on top of that you are also losing money on the stocks you own.

This is the exact same principle as an Employee Share Ownership Plan (which I am a member of at my work) Employees contribute a portion of their annual income into purchasing shares of the company where they work and in exchange their employer also contributes a percentage into company shares.  However if ever the company goes bankrupt the employee could end up losing their job as well as their savings?

Do you own stocks in your bank?  Just for fun let’s compare the stock performance of four major US Banks.

- TD Bank.  It is no secret that I use TD Bank  for all of my US Banking needs so let’s start comparing stocks with TD. The Toronto-Dominion Bank (symbol TD) trades on the New York Stock Exchange.  According to Yahoo Finance TD stock is estimated to reach a 1 year target of $92.31 and it is currently trading at $78.01 (Friday July 6, 2012). The dividend yield for TD is $2.83 which equals 3.60%.  The last 52 week price range is $64.56 to $86.56.

- Bank of America. To say that Bank of America has experienced a difficult past couple of years would be an understatement and this is reflected in the price of their stock.  Bank of America Corporation (symbol BAC) also trades on the New York Stock Exchange.  The estimated 1 year target price is $9.41 and it is currently trading at $7.66 (July 6, 2012).  The dividend payout for Bank of America stock is $0.04 per share which equals a yield of 0.5%.

- JP Morgan Chase. I used to own stocks of JP Morgan Chase & Co. but I sold them not too long ago when the “accounting” news started to break.  I knew that JP Morgan Chase (symbol JPM) would continue to decline and therefore I sold my stocks before the value declined too much. The 1 year estimate target price for JP Morgan stock is $45.57 and it is currently trading at $33.90 (Friday July 6, 2012).  JP Morgan stock has a very high dividend yield; it is currently paying $1.20 per share which is a 3.50% yield.

Which bank stock would you buy?

Photo by Katrina



{ 3 comments… read them below or add one }

1 John @ Calling the Puts Guy August 2, 2012 at 10:21 am

Personally, I don’t like bank stocks…, but I thought someone said something about hey, if you like the business enough to shop there, then maybe you should buy the company’s stock.

I think that stock options (or share ownership plans) are a bit different, though. For instance, if the business fails and you can’t shop there any more, the only thing you are out is the money you “invested” in that company, but you can find other place to shop. However, if you are “investing” in the company you work (at least majority of your portfolio), then if the company is going down, you are in the world of hurt. I can think of Enron…..

2 Nicole C. August 3, 2012 at 1:00 am

I own stocks of Wells Fargo, but I don’t bank with it. The stock is doing great this year, up 24% YTD. And, I bank with HSBC (I like the convience to be able to withdraw money worldwide, but it is now in a money laudering scandal). So, maybe the old saying is true :)
But even if I invest in HSBC and it goes bankrupt, I don’t think it will count at putting all eggs in one basket. It is because in US, the money in my checking/saving account are insured by FDIC.

3 James August 3, 2012 at 1:10 am

Hey Christina,

Great posting. I would caution readers not to put too much credence on analysts one year projects for stock growth, they tend to be more inaccurate the longer out analyst project.

Best,

James H.

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