Citigroup's Contrarian Opportunity: High Yield, Turnaround, and Buffett's Exit Signal

In the ever-shifting landscape of Wall Street, few moves carry the weight of Warren Buffett's portfolio decisions. Yet the Oracle of Omaha's sale of Citigroup (NYSE: C) in early 2025—detailed in Berkshire Hathaway's March 31 SEC filing—has sparked a critical question: Is this a warning sign, or a contrarian signal? For investors willing to look beyond the headline, Citigroup's valuation, dividend yield, and operational turnaround present a compelling case for long-term investment. Here's why Buffett's exit might just be your entry point.

The Buffett Exit: A Contrarian Signal

Buffett's sale of 14.6 million shares of Citigroup—his last remaining stake—has been interpreted by some as a vote of no confidence in the banking sector. Yet this overlooks two key facts: Citigroup's valuation is deeply discounted, and its operational progress under CEO Jane Fraser has been anything but average.

While the stock dipped briefly on the news, it had already rebounded 36% year-to-date by late March 2025, suggesting the market isn't entirely pessimistic. This divergence between Buffett's move and Citigroup's fundamentals creates an opportunity for investors who trust in turnaround stories and dividend resilience.

Valuation: A 20% Discount on Tangible Value

Citigroup's price-to-book (P/B) ratio—a critical metric for banks—currently sits at 0.8, a 20% discount to tangible book value. This is a stark contrast to peers like JPMorgan Chase (0.95) and Bank of America (1.0), and even below Morgan Stanley (0.75). The discount reflects lingering macroeconomic fears about banking sector stability, yet it also ignores Citigroup's progress:

• Cost-cutting efforts under Fraser have reduced expenses by $2.5 billion annually.
• Nonperforming loans remain low, with Brazil's Nu Holdings (not part of Citigroup) being the exception.
• Tangible book value per share has grown by 8% over the past year, even as the stock languished.

Analyst Mike Mayo of Wells Fargo recently raised his price target to $110, implying 50% upside from current levels. The consensus target of $84 still suggests 12% upside, making Citigroup one of the cheapest major banks.

Dividend Yield: 2.97% and Growing

With interest rates elevated, high-yield stocks are in demand. Citigroup's dividend yield of 2.97% isn't just attractive—it's sustainable. The bank's dividend payout ratio (dividends as a percentage of earnings) is a conservative 30%, leaving ample room for growth.

In the first quarter of 2025, Citigroup beat earnings estimates by 12%, driven by strong consumer lending and corporate banking. Fraser's focus on “returning capital to shareholders” has already led to a 7% dividend hike in 2024, and further increases are likely as efficiency gains materialize.

Compare this to JPMorgan's 2.7% yield or Bank of America's 2.3%, and Citigroup's dividend advantage becomes clear. For income-focused investors, this is a high-yield play with growth potential.

Fundamentals: Fraser's Turnaround Paying Off

Buffett's exit may have been strategic, but it's not because Citigroup is failing. Fraser's restructuring has delivered:

• Revenue growth: Citigroup's global consumer bank grew 4% in 2024, outpacing U.S. peers.
• Cost discipline: Operating expenses fell 3% annually as the bank shed underperforming divisions.
• Balance sheet strength: Tier 1 capital ratio of 14.5%—well above regulatory requirements.

The bank's $10 billion share buyback program, active since late 2023, has also reduced dilution, boosting per-share metrics.

The Macro Picture: Recession-Resistant Valuation

Critics argue that Citigroup's valuation reflects fears of a coming recession. Yet this is exactly why the stock is a contrarian buy:
- A 20% P/B discount already prices in a mild downturn.
- Citigroup's diversified revenue streams (global banking, wealth management, and transaction services) reduce reliance on U.S. rate-sensitive income.
- Fraser's focus on “high-margin” businesses—like its $50 billion wealth management unit—ensures resilience even in slowing economies.

Final Call: Buy the Dip, Hold for the Turnaround

Buffett's sale of Citigroup isn't a verdict on the bank's future—it's a strategic pivot to consumer goods and utilities. For investors, this creates a once-in-a-cycle opportunity:

• Valuation: P/B of 0.8 vs. historical average of 1.2.
• Dividend: 2.97% yield with room to grow.
• Management: Fraser's track record of execution.

The market may be pricing in doom, but Citigroup's fundamentals and valuation suggest a 50% upside is achievable. For long-term investors seeking high yield and a turnaround story, the time to act is now.

Act fast: The contrarian window doesn't stay open forever.