Last week, Berkshire Hathaway (BRK.B), which the legendary Warren Buffett leads, released its 13F for the first quarter. The filing showed that the conglomerate trimmed stakes in Bank of America (BAC) and Capital One Financial (COF) while exiting Citigroup (C) and Nu Holdings (NU).

Apart from Berkshire disclosing that it was building a stake in a “secret” company, the filing didn’t offer any real surprise. As for Citi, the “Oracle of Omaha” trimmed its stake in Q4, and in a previous article, I noted that it was only a matter of time before Berkshire exited the bank. Buffett tends to gradually add to his stakes, and his exits are typically spread across more than one quarter.

Buffett first bought shares in Citi in 2022. The purchase came amid the bank’s transformation under CEO Jane Fraser. Moreover, while Buffett was selling financial stocks pretty much left, right, and center and exited long-time holdings like JPMorgan (JPM), Goldman Sachs (GS), and Wells Fargo (WFC), he kept holding Citi shares until Q3 2024 and started selling the stake only in Q4.

In this article, we’ll discuss whether you should follow the famed value investor or stay invested in Citi, which offers among the highest dividend yields among large-cap U.S. banks.

Citigroup Offers a Healthy Dividend Yield

Citigroup has a dividend yield of 3%, which is better than its large-cap banking peers like Bank of America and JPMorgan. Citi is expected to keep growing its dividends as its earnings improve, and last year, Goldman Sachs said that it expects Citi to grow its dividend at a compound annual growth rate (CAGR) of 19% between 2024 and 2026.

Why Did Buffett Exit Citi?

A famed value investor like Buffett selling Citi shares is not the vote of confidence that the stock would want. However, it isn’t be fair to single out Citi as Buffett has been on a stock-selling spree, and Berkshire has net sold stocks (more stock sales than buys) for 10 consecutive quarters. The conglomerate was a net seller of stocks to the tune of $174 billion over the period, which, coupled with its organic cash flows and dividends from investee companies, helped catapult its cash pile to a record high of almost $348 billion at the end of March.

Buffett has alluded to the fact that he does not see many opportunities to deploy that cash. To sum it up, it is not that Buffett finds anything particularly wrong with Citi. Instead, his exit from the bank is part of a larger strategy under which he also sold the bulk of Berkshire’s stake in top holding Apple (AAPL).

Should You Buy Citi Stock?

Citi is a play on the banking sector as well as the bank’s continued progress in its turnaround. The macroeconomic environment has improved slightly for the U.S. banking sector as President Donald Trump has toned down his tariff rhetoric, and the administration is working on trade deals.

An eventual Federal Reserve rate cut (or rather cuts) would be a negative for the banking sector as it would squeeze net income margins. However, for now, Chair Jerome Powell has signalled that the Fed will hold back on rate cuts unless they see more signs of inflation falling toward the stated goal of 2%.

From a company perspective, Citi is a play on the turnaround and the resultant valuation rerating. The stock has been trading below its book value for quite some time now, which is seen as a sign of undervaluation for banks, and Citi’s average banking peer trades at a much higher price-book value multiples.

The valuation disconnect has been on account of Citi’s low margins and return ratios. However, Citi’s ratios have improved amid the turnaround, and in Q1 2025, it reported a return on average common equity of 8% compared to 6.6% in the corresponding quarter last year. The bank had a tangible book value of $91.52 at the end of March, while the corresponding numbers for 2024 and 2023 were $86.67 and $84.21, respectively.

Meanwhile, as Citi has shown progress in the turnaround, the gap between its price and tangible book value has narrowed. Based on the Q1 value, the bank currently trades at a price-to-tangible book value of 0.83x.

I find Citi’s risk-reward reasonably attractive here and continue to bet on the gradual valuation rerating. I capitalized on the April selloff to add more shares of Citi and see it as a name that brings both healthy dividends and prospects of strong capital appreciation to the table. 

To sum it up, while Buffett has exited Citi, I find no reason to sell my holdings, at least at these levels.