Analysis of Long-Term Investment Returns from the Low-Valuation and High-Dividend Strategy for Bank Stocks

Based on historical data analysis of Industrial Bank (601166.SS) and China Merchants Bank (600036.SS), as well as an assessment of the current market environment, I will provide a comprehensive analysis of the long-term performance of the low-valuation and high-dividend strategy for bank stocks.

• Current Valuation
  : P/B ratio of 0.56x, P/E ratio of 6.38x, in a significantly undervalued state
• Performance
  : Cumulative return of 20.12% from 2018 to 2025, annualized return of approximately 2.18%
• Financial Characteristics
  : ROE of 8.96%, net profit margin of 23.68%, relatively aggressive financial style [0]

• Current Valuation
  : P/B ratio of 0.81x, P/E ratio of 7.31x, relatively reasonable and low
• Performance
  : Cumulative return of 43.07% from 2018 to 2025, annualized return of approximately 4.31%
• Financial Characteristics
  : ROE of 12.09%, net profit margin of 43.51%, relatively conservative financial style [0]

Based on 1 million yuan initial investment and 8-year holding period simulation analysis:

Investment Scenario	Annualized Dividend Yield	Annualized Stock Price Growth	Final Asset Value	Cumulative Dividends
Conservative Scenario	4.0%	2.0%	1.6 million yuan	400,000 yuan
Baseline Scenario	4.5%	3.0%	1.8 million yuan	470,000 yuan
Optimistic Scenario	5.0%	5.0%	2.18 million yuan	580,000 yuan

• Industrial Bank
  : Annualized volatility of 25.74%, maximum drawdown of 79.0%
• China Merchants Bank
  : Annualized volatility of 28.45%, maximum drawdown of 106.92%

Despite the high volatility, the most prominent feature of bank stocks is their

, which provide an important safety margin for long-term investors.

Both banks currently have a P/B ratio below 1x, significantly lower than their historical average. Industrial Bank’s 0.56x P/B ratio means its market price is only 56% of its net assets, providing an extremely high safety margin [0].

Against the backdrop of continuously declining deposit rates (some have fallen below 1% recently), the 4-5% dividend yield of bank stocks shows strong attractiveness [1]. There are 124 A-share companies with a dividend yield exceeding 5% in the past year, and bank stocks account for a relatively high proportion [1].

A research report from CICC points out that the banking industry will show a “stable with progress” characteristic in 2026, with listed banks’ operating income expected to grow by 2.5% year-on-year and net profit attributable to parent companies by 1.9% year-on-year [1]. Banks have entered a stage of high-quality development, and high-dividend investment has become a major paradigm [1].

It is recommended to diversify allocation across different types of banks, including state-owned large banks, joint-stock banks, and city commercial banks, to spread risk.

Consider building positions in batches when the P/B ratio is below 0.7x, following the “buy more as it falls” strategy to take advantage of market fluctuations for better cost efficiency.

###3. Adhere to Dividend Reinvestment
Dividend reinvestment is a core strategy for bank stock investment, as it can fully leverage the compounding effect and significantly enhance total returns in the long run.

###4. Monitor Changes in Asset Quality
It is necessary to closely monitor changes in banks’ asset quality, especially the risk exposure of real estate-related loans, to avoid falling into the “high-dividend trap” [1].

###1. Economic Cycle Risk
Bank performance is highly correlated with the economic cycle; during economic downturns, they may face dual pressures of narrowing interest margins and deteriorating asset quality.

###2. Regulatory Policy Risk
Changes in financial regulatory policies may affect banks’ business models and profitability; it is necessary to closely monitor policy trends.

###3. Dividend Sustainability Risk
Some banks may hinder their business development to maintain high dividends; it is necessary to assess the sustainability of dividends rather than simply pursuing high dividend yields.

The low-valuation and high-dividend strategy for bank stocks still has strong allocation value in the current market environment. Based on 8-year historical data, although stock prices are highly volatile, stable dividend cash flows provide important return support and risk buffers for investors.

Combined with the current low valuation level and relatively favorable policy environment, the low-valuation and high-dividend strategy for bank stocks remains a worthy investment option for long-term investors with moderate risk appetites who pursue stable cash flows. However, it should be noted that this strategy is more suitable as a core allocation in an investment portfolio rather than the entire position; it should be combined with other asset classes to achieve better risk diversification effects.

[0] Gilin API Data
[1] CICC 2026 Banking Industry Outlook: Focus on Dividend Yield Levels and Certainty (https://hk.investing.com/news/stock-market-news/article-1235107)
[2] 124 A-Share Companies Have Dividend Yields Exceeding 5% (https://www.stcn.com/article/detail/3505182.html)