The 7 Best Bank Stocks to Buy for 2017

A changing environment breeds new opportunities.

Markets expect 2017 to be a fine year for financials. Bank stocks specifically should perform well, but what are the best bank stocks to buy for 2017, and why? President-elect Donald Trump's promises to increase infrastructure spending, decrease financial regulation, and lower taxes are expected to lead to inflation and higher interest rates. That's music to the ears of bankers, who can charge borrowers higher rates while paying only marginally higher interest on deposits. Despite a post-election rally, many financials remain undervalued. Here are seven of the best bank stocks to buy for 2017.

BB&T Corp. (ticker: BBT)

This $36 billion southeast regional bank has a reputation for fairly principled, conservative lending. Another term for it might be "responsible." Although it got hammered with the rest of the financial sector in the crash of 2008-2009, it took the bank only seven months to pay back the bailout money it received from Uncle Sam, money it later claimed it was strong-armed into taking. In any case, BBT is one of the strongest regional financial institutions out there, and a great bank stock to buy for 2017. It pays a juicy 2.7 percent dividend.

Citizens Financial Group (CFG)

CFG is another regional bank stock you should consider adding to your portfolio for 2017. The $17 billion company provides a range of traditional consumer and commercial banking services like checking and savings accounts, home loans, car loans, credit cards and commercial real estate services. One reason so many of the best bank stocks to buy for 2017 are regional is that while Trump has promised de-regulation of the financial sector, he's also talked tough about the biggest Wall Street firms. If there's a crackdown, it won't be on regional retail banks like this one. CFG stock pays a modest 1.5 percent dividend and trades for 17 times earnings.

Fifth Third Bancorp (FITB)

Going into 2017, regional bank Fifth Third Bancorp is coming off a strong third quarter in which it beat both earnings per share and revenue estimates. FITB earned 65 cents per share on revenue of $1.75 billion, smashing the 41 cents per share on $1.62 billion in revenue that analysts expected. It's also nice to see Fifth Third doing something you don't really see from a Goldman Sachs (GS) or a Citigroup (C): pledging to invest big in its local communities. FITB set aside $30 billion to deploy across three areas: mortgage lending to low-income individuals, small business lending and community development lending. FITB stock pays a 2.1 percent dividend.

SunTrust Banks (STI)

Like Fifth Third, STI is also coming off a good third quarter in which it beat on both revenue and EPS expectations. The funny thing with stocks like FITB and STI is even after impressive third quarters and surprising presidential election results that should boost their long-term profits, both stocks trade at very modest multiples. STI stock jumped 15 percent in the first five trading days after the election -- but still trades for just 14 times earnings. SunTrust dishes out a 2 percent dividend and boasts a very attractive 29 percent dividend payout ratio, implying further dividend increases could be done easily.

U.S. Bancorp (USB)

With a market value above $80 billion, USB dwarfs the previous four banks on this list. That's fine: investors should always seek some degree of diversity in their portfolios, so if you own a handful of bank stocks it might be a good idea to diversify across market capitalizations, regional versus national scope and retail versus investment banks. Founded in 1863, USB is a Steady Eddie -- it's typically not going to jump 50 percent in a year and is very unlikely to be acquired, but its earnings should soar if interest rates rise and its 2.3 percent dividend yield and P/E ratio of 15 are nothing to scoff at.

Cullen/Frost Bankers (CFR)

With a market cap of $5 billion, CFR is a fraction of the size of U.S. Bancorp. While it does look like one of the more attractive bank stocks to buy for 2017, remember its smaller size equates to higher volatility. Of course, with greater risk comes greater reward: In 2016, CFR lost nearly 50 percent of its value, then rallied, doubling from its lows before the year was over. CFR's heavy exposure to the oil industry and Houston's real estate market constitute most of the risk here, but the company continues to diversify that risk away, and recently passed a stress test.

PNC Financial Services Group (PNC)

Last but not least, the Pittsburgh, Pennsylvania-based PNC also makes the cut of the best bank stocks to buy for a few reasons. Like U.S. Bank, its $50 billion-plus market cap is large enough to offer investors stability while avoiding the intense scrutiny and potential regulations that systemically important banks might have to navigate. It's guaranteed to benefit from higher rates, it trades for just 15 times earnings, pays a 2 percent dividend at a 30 percent payout ratio, and 2016 will make five straight years of declining expenses. If the fourth quarter goes as planned, PNC will have saved a combined $900 million in 2015 and 2016 combined.

John Divine is an investing reporter for U.S. News & World Report, where he covers financial markets and the economy, with a focus on individual stock analysis. He has been an investor himself for over 10 years, and has been writing professionally about stocks and investing for the last five years. He previously wrote about the stock market for The Motley Fool and InvestorPlace, and his work has appeared on Yahoo! Finance, MSN Money, and AOL DailyFinance. He graduated from Appalachian State University in 2011 with a bachelor's degree in finance and banking. At Appalachian, he was a member of the Bowden Investment Group, a team of students that ran a real-money portfolio worth over $100,000. You can follow him on Twitter or give him the Tip of the Century at jdivine@usnews.com.