Bank vault © Corbis

As bank earnings continue to roll out over the next few weeks, the headlines will focus on earnings. But I'll be looking more at improvement in banks' financial strength, for a simple reason.

We bailed out the banks five years ago. Now that they're getting better, it's payback time. And I want to be invested in the banks that'll be paying us back the most.

Those will be the ones with financial strength that keeps improving -- with room for further gains.

The banks, of course, long ago returned the bailout money, with interest. So when I say "payback time," I'm talking about all the loot they'll be handing over to shareholders now that they're getting stronger -- thanks to our bailouts.

That money will be arriving in the form of markedly higher dividends and stock buybacks. Either way, shareholders will benefit handsomely.

Here's my payback six-pack -- a short list of six banks for a "payback portfolio." These banks may be returning the most money to shareholders over the next three to five years. I put this list together with help from several mutual fund managers who are making the same bet.

The big 3

The three biggest banks that got the most taxpayer support should be the core of any payback portfolio. This means Citigroup (C), Bank of America (BAC) and JPMorgan Chase (JPM). As taxpayers, we basically saved the first two. So, why not own their stocks now for payback?

Image: Michael Brush

Michael Brush

JPMorgan Chase might have survived without help, since it was more cautious going into the credit meltdown. But the bailouts did help. So did a government-endorsed takeover of troubled Washington Mutual, which gave JPMorgan a whole new branch network at a good price.

Going forward, paybacks to shareholders -- plus improving business as the economy strengthens -- will put more money into the accounts of shareholders of these three and drive their stocks a lot higher.

"We think the large banks are in the third inning of a valuation re-rating," says Kevin Holt, a value manager in charge of the Invesco Comstock (ACSTX) fund, which started adding the banks ahead of last year's big move up.

"The real exciting thing about these banks is that there's a lot of excess capital that will be used for buybacks or dividends over the next five years," Holt says.

Holt, who manages $18 billion, is worth listening to; his fund beat competitors by 2 percentage points a year, annualized, over the past five years, according to Morningstar.

3 smaller banks

As for the smaller banks, the pickings aren't as easy, since many of these banks are much further along the road to recovery. This means there's less room for dividend hikes and share buybacks. It also means their stocks aren't as cheap.

But I'd go with Capital One Financial (COF), SunTrust Banks (STI) and Regions Financial (RF).

These are three favorites of Anton Schutz, manager of the Burnham Financial Industries (BURFX) fund, which beat competing funds by 5 percentage points a year, annualized, over the past five years, according to Morningstar.

Some challenges, but don't worry

Sure, these banks face some big challenges. Low interest rates mean skimpier profits on loans. And loan growth is not exactly robust, at about 4% in the first quarter.

But the banks have been trimming costs and improving their financial strength -- and that leaves room to start giving back a lot more money to shareholders. Citigroup, Bank of America and JPMorgan Chase alone will return $55 billion to $80 billion over the next three years, says Patrick Kaser, a value manager at Brandywine Global Investment Management.

Let's deal with another issue: Does it make sense to buy the banks after they outperformed the market by so much last year? This should not scare you away, either, for at least two reasons.

For starters, 2012 was the first year the banks outperformed after four years of lagging the market. And once a group outperforms after such a weak stretch, it usually doesn't stop at one year, says Kaser.

Next, many of the banks still look cheap, despite the outperformance. All six of my payback portfolio banks trade below book value, which you can think of as the theoretical liquidation value of these banks. Plus they have price-earnings ratios, using next year's earnings, well below 10.

Investors looking for income should be happy with banks, as they continue to raise dividends. But don't be surprised if a lot of the capital return comes in the form of share buybacks, since this is the method preferred by the Fed, says Credit Suisse analyst Moshe Orenbuch. The Fed likes buybacks because they provide more flexibility. Banks can dial them back, if need be, without spooking investors too much. In contrast, dividend cuts can hurt stocks.

For shareholders, buybacks aren't a bad thing, since they boost per-share earnings by trimming the number of shares outstanding, thereby supporting share prices. They're especially beneficial when stocks trade below book value, since it means the banks are getting more than they pay for -- a lot more bang for their buck, in other words.

Now let's look more closely at my payback six-pack.