Dividends of Comerica Inc. are among the largest in the financial services industry, but the quarterly payouts haven’t been enough to cover rate-driven stock losses.
The regional lender’s proven sensitivity to interest rate fluctuations should flash a clear warning signal to investors. Comerica stock has fallen 19%, or $15.93, over the past year. That includes a 2.5% drop Wednesday after the The Federal Open Markets Committee lowered rates for the third time this year.
The bank currently boasts a quarterly payout of $0.67 per share with a 3.74% yield. That’s well above the S&P’s average yield of 1.87% and other regional banks’ 2.77% average.
But an investor with 10 Comerica shares had $835.50 in November 2018. The bundle is now worth just $676.20. Even with dividends, the current value is just $703.
Dividends have risen every year since 2015. But that trend could be in jeopardy if earnings start showing strain. Income proved resilient between July and October, when Comerica reported earnings of $1.96 per share. Analysts had predicted $1.90.
To be sure, Chairman Jerome Powell also hinted the Fed might be done lowering rates for the time being. That may help Comerica in the long term, but the near-term damage has been done.
Weaker growth prospects in the bank’s most recent earnings report highlight the risks of Comerica’s asset-sensitive balance sheet. The share of energy loans Comerica expects not to be repaid this year rose 10% to $34 million in the third quarter, and accounted for 81% of Comerica’s overall loan losses.
The bank is also upping its provisional expenses, which it sets aside for loans that go south.
The energy charge-offs are a prime example of the outcome when just one industry on Comerica’s balance sheet struggles significantly. Gross domestic product is expected to fall below 2% in 2020.
That’s bad news for Comerica because its lifeblood –– commercial and industrial loans –– will see more charge-offs and decreased demand. When the economy struggles, businesses invest with greater caution. That means loan demand from the small and midsize businesses that usually frequent Comerica could dry up.