A select group of bank stocks are paying outsized dividends and remain values while their larger peers are in danger of topping out in the stock-market rally.
The biggest banks are paying next to nothing. Investors get zilch from Citigroup C-N. Bank of America BAC-N and Wells Fargo WFC-N flip a few coins to stockholders. Even the high-flying JPMorgan Chase JPM-N pays a nominal quarterly dividend of five cents a share.
Following TheStreet.com's recent look at three undervalued banks, which was based on price-to-book ratio, asset quality and consistency of earnings, here are three banks in good financial shape that pay dividends that would be compelling in a bull or a bear market: New York Community Bancorp NYB-N, United Bankshares UBSI-N and Capitol Federal Financial CFFN-N.
We limited our selection to banks that aren't participating in the Troubled Asset Relief Program, with non-performing assets that are less than 1.5 per cent of the total. Also excluded were a few high-dividend payers with low stock-trading volume. SNL Financial provided the data.
New York Community Bancorp
New York Community Bancorp, which does business in New York state and parts of New Jersey, pays 25 cents a share, translating to a yield of 9.43 per cent.
The company has paid that dividend since the second quarter of 2002, but the stock has languished. That reflects investor concerns the payout may be cut, since the company's ratio of cash dividends paid over income before extra items exceeded 100 per cent over the past three years and the first three quarters of 2009.
Chief executive officer Joseph Ficalora has said repeatedly that New York Community is "genuinely committed" to maintaining the dividend, and with the company's common equity boosted by $99-million in third-quarter earnings, an exchange of preferred shares, along with the issuance of $65-million in common shares through direct purchases of additional shares by stockholders, the company's tangible common equity ratio increased to 6.03 per cent as of Sept. 30, from 5.59 per cent in the previous quarter.
Another worry is that the nonperforming-assets ratio increased to 1.45 per cent from 1.04 per cent. Then again, with nearly three-quarters of the loan portfolio secured by apartment buildings with mainly rent-controlled or rent-stabilized dwellings with below-market rents, actual loan losses have been minimal. The low-risk loan collateral, along with relatively small average loan-to-value ratios of 61 per cent on multifamily mortgages and 54 per cent on commercial real-estate loans, have enabled the company to avoid large loan losses.
The annualized ratio of net charge-offs to average loans was a tiny 0.03 per cent for the third quarter, and has remained below 0.05 per cent this year. A bright spot for New York Community in the third quarter was a net interest margin (the difference between the average yield on loans and investments and the average cost of deposits and borrowings) of 3.17 per cent, up from 3.06 per cent in the previous quarter and 2.68 per cent a year earlier.
The improved margin helped the company increase its return on average assets to a respectable 1.39 per cent for the third quarter, up from 1.10 per cent in the second quarter and 1.22 per cent a year earlier.
New York Community's shares have fallen 12 per cent this year, trading near the low end of a 52-week range of $8 to $15. They're at 9.5 times earnings, 0.7 times book value and 2.1 times tangible book value. The stock is up 24 per cent over one year.
United Bankshares
United Bankshares of Charleston, W. Va., pays a 29-cent quarterly dividend, or a yield of 6.8 per cent.
The company, with $8-billion in assets, has seen it shares drop 46 per cent this year. The stock rallied from March until May, but pulled back when United Bankshares announced lower second-quarter earnings from $21.4 million in loan charge-offs.
