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U.S. Bancorp (
USB) isn't the biggest financial sector buy from the second quarter (that honor goes to
Wells Fargo (
WFC)). But it was the biggest conviction buy of the quarter, with the addition of 16.8 million shares to Berkshire Hathaway's portfolio. The buy increased Buffett and company's stake in USB by more than 26%, a $744 million bump in dollar terms.
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U.S. Bancorp is a $67 billion regional banking firm that operates a retail and commercial banking business in 25 states spread across the country. USB's size means that it's barely a regional bank -- save for the deep margins, financial strength and relative autonomy that this class of banks enjoys over its big-four rivals. While most banks have focused on transaction-driven income, USB's focus on fee revenues makes it especially attractive.
It's focused on the fees by building out its wealth management, credit card servicing, and trustee businesses, three units that have contributed double-digit growth rates to USB's income statement. Fee-based revenues are generally recurring, and they tend to court stickier customers than traditional banking operations could hope to. As a result, U.S. Bancorp offers up one of the larger dividend yields among big banks at 2.5%.
Berkshire is betting big on USB this quarter, and investors could do a lot worse.