Undervalued by 26%, This High-Dividend Stock Is a Buy

U.S. Bancorp is one of the largest regional banks in the country. It earns a wide economic moat rating and exemplary marks for management’s adept capital allocation. U.S. Bancorp has delivered several quarters of solid expense control and is our top pick among the regionals. The stock looks significantly undervalued, and its 5%-plus dividend yield should attract income investors. U.S. Bancorp lands on our Best Companies to Own list. It’s also one of Morningstar chief US market strategist Dave Sekera’s 4 Stocks to Buy During Tariff Uncertainty.

U.S. Bancorp has been one of the most profitable regional banks we cover. Few domestic peers can match its operating efficiency and returns over the past 15 years, although some seem to be gradually catching up. A mix of fee-generating businesses sets U.S. Bancorp apart from most regional peers, including payments, corporate trust, wealth management, and mortgage banking, all while avoiding the volatile trading business. Having this more complete product portfolio leads to economies of scope for the bank as a whole. Its latest strategy has been to focus on its payment ecosystem, expand its branch footprint, and pursue new acquisitions and partnerships. It is also spending on tech and bolt-on deals to win more software-centric merchant acquiring business.

Key Morningstar Metrics for U.S. Bancorp

• Fair Value Estimate: $53
• Star Rating: 4 Stars
• Economic Moat Rating: Wide
• Uncertainty Rating: Medium

Economic Moat Rating

We believe U.S. Bancorp possesses durable cost advantages and switching costs that are consistent with our bank moat framework. The bank has consistently earned returns on tangible equity superior to peers and in excess of our estimated cost of equity of 9%. U.S. Bancorp has the fourth-largest deposit market share in its footprint. It is also one of the largest US issuers of credit cards and debit cards (with particular strength in its commercial cards), one of the largest domestic merchant processors, and one of the largest corporate trust providers. It is the largest US regional bank and is not subject to a global systemically important bank surcharge, unlike money-center banks. This gives it a structural return advantage over the Big Four banks.

Read more about U.S. Bancorp’s moat rating.

Fair Value Estimate for U.S. Bancorp Stock

Our $53 fair value estimate is equivalent to 2.2 times tangible book value at the end of December 2024. For 2025, we expect net interest income to increase by 2.6%, as funding costs should be lower after the Federal Reserve’s rate cuts in 2024. We expect average loans to grow by 3%, mostly driven by credit card and commercial loans. We expect deposits to grow by 2.5%. We see noninterest income increasing by 4.4%, largely driven by higher asset-based fees as the bank expands its capital markets-related offerings. We expect payment-related revenue growth of 3.3%, mostly driven by retail credit cards, debit cards, and tech-led merchant processing services. We expect expenses to increase by 1.8%. We expect the efficiency ratio to improve to around 58% through the cycle.

Read more about U.S. Bancorp’s fair value estimate.

Risk and Uncertainty

We view the macroeconomic backdrop as the primary risk to U.S. Bancorp. Profitability will be materially affected by the interest-rate cycle and the effects of credit and debt cycles, none of which are under management’s control. In addition, the bank is subject to the Federal Reserve’s annual stress test, with the results affecting the level of capital that U.S. Bancorp should hold. If the bank is required to hold more capital, its return on equity could be affected. Commercial banks are expected to have strong product governance and avoid practices like predatory or discriminatory lending. Banks also lend to sectors that can come under more scrutiny at times.

Read more about U.S. Bancorp’s risk and uncertainty.

U.S. Bancorp Bulls Say

• Strong fee revenue in moaty businesses like payments helps insulate U.S. Bancorp from a flatter yield curve and drives higher returns on equity.
• The acquisition of MUFG Union Bank and recent partnerships with State Farm and Edward Jones could provide additional revenue growth and differentiation from peers.
• U.S. Bancorp is the largest megaregional bank in the United States, which allows it to have the most scale without the additional regulatory burden of being a GSIB.

U.S. Bancorp Bears Say

• A recession isn’t out of the question. There are signs of weakness in the labor market and manufacturing activity.
• U.S. Bancorp faces stiff competition in payments, often from players with even more scale or financial technology players that may be nimbler.
• The gap between U.S. Bancorp’s superior operational efficiency and returns on equity and those of its peers has narrowed.

This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of April 23, 2025.