U.S. Bancorp (USB): A Dividend Champion Trading at a Discount

U.S. Bancorp (USB), the fifth-largest commercial bank in the U.S., has quietly built a reputation as a dividend stalwart while trading at a valuation that lags many peers. With a dividend growth streak of 14 consecutive years and a current P/E ratio of just 10.53—far below its historical averages—the stock presents an intriguing mix of income appeal and potential undervaluation. Let’s dissect the data to determine whether USB is a buy, hold, or sell.

Dividend Growth: Steady but Slowing?

USB’s dividend history is a standout feature. The company raised its quarterly dividend to $0.50 per share in April 2025, up from $0.49 in the previous quarter, marking a ~2.04% annualized increase for 2025. Over the past decade, dividend growth averaged 7.63% annually, though the pace has slowed to ~5% over the last five years and just 1.56% in the trailing 12 months.

The payout ratio—dividends divided by earnings—currently sits at 63.95%, edging into “elevated” territory (typically above 60%). While this could limit future growth, USB’s 14-year dividend-growth streak and robust capital ratios (e.g., a CET1 capital ratio of 10.8%) suggest the dividend remains safe.

Valuation: A P/E Ratio at a Decade-Low Discount

USB’s trailing P/E ratio of 10.53 as of April 2025 is 17% below its 10-year average of 12.7 and 10% below its peer average of 11.64. To contextualize this:
- Historical Range: Over the past decade, USB’s P/E has fluctuated between 8.9 (March 2020) and 15.9 (September 2017).
- Peer Comparison:
- Wells Fargo (WFC): 12.84
- Bank of America (BAC): 12.21
- Great Southern Bancorp (GSBC): 10.38

The forward P/E of 10.82 suggests modest growth expectations, but USB’s Q1 2025 earnings—highlighted by a 17.5% return on tangible equity and $2.8B in non-interest income—argue that the stock is undervalued.

Risks and Considerations

1. Payout Ratio Pressure: The 63.95% payout ratio leaves less room for reinvestment. If earnings growth stalls, dividend hikes could slow further.
2. Cyclical Sector Dynamics: Banks are cyclical; a recession could pressure net interest margins and loan quality. USB’s CET1 ratio and low 0.5% net charge-off rate provide resilience but not immunity.
3. Valuation Volatility: The P/E has swung widely over the years, reflecting macroeconomic shifts. Current lows might signal pessimism about rates or economic growth.

The Bottom Line: A Compelling Value Play

USB combines a reliable dividend (yielding ~2.3% at current prices) with a valuation near its decade-low P/E of 10.53. Analysts project 3%-5% revenue growth in 2025 and a price target of $55.27—a 42.5% upside from April 2025’s $39.92 share price.

While dividend growth has slowed, the stock’s historical dividend safety, strong capital metrics, and undervaluation relative to peers make it a compelling hold for income investors. For growth-oriented buyers, the low P/E suggests the market has yet to price in USB’s consistent profitability and improving fee-based revenue streams (41% of net income in Q1 2025).

In conclusion, U.S. Bancorp offers a rare blend of dividend reliability and valuation upside. With a P/E 17% below its own historical average and a payout ratio that, while elevated, remains sustainable, USB appears poised to reward patient investors. For those willing to overlook near-term growth headwinds, this regional banking giant could deliver both income and capital appreciation in the years ahead.