The dog days of summer have increased the dividend yields on many quality bank and thrift names, underscoring how cheap these stocks are right now and presenting fantastic long-term growth and income plays for investors.
Since TheStreet published 10 More Bank Stocks With Solid Dividends in late June, yields on several quality bank and thrift stocks with significant dividend payouts have increased considerably.
For example, shares of First Niagara Financial closed at $12.08 and based on a quarterly payout of 14 cents a share had a dividend yield of 4.64%, up from 4.37% on June 24. First Niagara announced last week that was in talks to aquire New Alliance Bancshares for $1.5 billion.
With so many healthy bank and thrift holding company stocks continue to pull back over the summer, this is a good time to once again highlight quality growth and income names using conservative criteria. Starting with regulatory data and market data from Friday's close provided by SNL Financial, we pared down the list of 1,001 publicly traded bank and thrift holding companies — excluding those traded on the PinkSheets — using the following criteria:
- Dividend yield greater than 4% as of last Friday's close.
- Price-to-tangible-book ratio below 2.
- Nonperforming assets (NPA) below 3% of total assets.
We excluded companies for which tangible book value was unavailable from SNL. Regulatory data was for the most recent quarter available, since second-quarter data wasn't yet available for all the bank and thrift holding companies.
SNL defines nonperforming assets (NPA) as nonaccrual loans (less government-guaranteed balances), restructured loans and foreclosed assets. If this wasn't available from Securities and Exchange Commission filings, we used the most recent data for holding companies required to file with the Federal Reserve. For holding companies for which SNL couldn't provide the ratio from either of those sources, we used the combined NPA ratio was their combined bank and thrift subsidiaries.
Once again we were extra-conservative, excluding names paying out more in dividends than they earned during the first half of 2010 (which excluded First Niagara), and names trading for more than two times tangible book value. We also excluded companies still owing money to the government for bailout funds received through the Troubled Assets Relief Program, or TARP.
Excluding names trading above two times tangible book value helps use to focus on high-yielding names that may also be undervalued, but this approach has us once again leaving out New York Community Bancorp , which has benefitted from acquisitions of failed institutions during the crisis, and had a dividend yield of 6.23% as of Friday's close.
Finally, since our last story of this type featured low-volume names, this time we listed the ten bank stocks meeting the above criteria that had the highest three-month average trading volume according to SunGard data provided by SNL. (See all 10 stocks at a glance: Click ahead to chart.)
Following is some background on the top three highest yielders.
1. F.N.B. Corporation
The highest-yielding bank or thrift stock on our selected list is F.N.B. Corporation of Hermitage, Penn. The shares closed at $7.77 Friday, up 18% year-to-date, and were yielding 6.18% on a quarterly dividend payout of 12 cents.
F.N.B. had $8.8 billion in total assets as of June 30. The company announced on August 9 a definitive agreement to acquire Comm Bancorp of Clarks Summit, Penn. for a combined $70 million in cash and stock. The deal is expected to be completed in the fourth quarter of 2010. Comm Bancorp had 15 branches in Northeastern Pennsylvania and $642 million in total assets as of June 30.
In an investor presentation the following day, FNB's senior management emphasized the company's experience successfully integrating seven previous acquisitions since 2002 and how the combined company might benefit from the Marcellus Shale, which, when fully developed, has "potential to be the second largest natural gas field in the world."
Guggenheim Securities analyst David Darst agreed that FNB was quite successful with previous merger integrations, acquiring since 2004 total assets of "$3.4 billion with no significant increase in risk or loss profile," although he maintained a neutral rating, with a 12-month price target of $9.00.
Then again, based on Friday's close at $7.77, the target price would be a 16% gain, and an investor would receive a fat dividend yield while waiting.
2. Hudson City Bancorp
Hudson City Bancorp of Paramus, N.J., has received so much positive press in light of its success through the credit crisis, low valuation to tangible book value and high efficiency, that it's difficult to add anything new to the story. Shares closed at $11.96 Friday, down 10% year-to-date, and were yielding 5.02% on a 15-cent quarterly payout.
Please see TheStreet's second-quarter earnings coverage for more on Hudson City's overall performance and a discussion on other highly-efficient banks and thrifts.
It's fascinating that so many analysts covering the shares lack conviction. Even with this low-risk play selling for just 1.2 times tangible book value, only 5 out of 17 analysts covering Hudson City had buy recommendations on the shares, and two had sell ratings, according to Bloomberg.
3. TrustCo Bank Corp
The third-highest yielding stock on our selected list was TrustCo Bank Corp NY , which was yielding 4.84% Friday, based on a closing price of $5.46 and the company's new quarterly dividend of 6.6 cents a share, announced last Tuesday, when the company increased the payout by 10%. The Shares were down 12% year-to-date as of Friday's close.
TrustCo had $3.8 billion in total assets as of June 30 and reported second-quarter net income of $7.1 million or 9.3 cents a share, up from $5.4 million or 7 cents a share a year earlier. The company's return on average assets for the second quarter was 0.75% — still a far cry from the pre-crisis returns of 1.52% in 2006 and 1.20% in 2007, and even 1% in 2008.
While the company's net interest margin improved to 3.51% for the second quarter from 3.24% a year earlier, elevated quarterly provisions for loan losses have continued to drag on earnings. Sterne Agee analyst Mike Shafir has a neutral rating on the shares, saying on July 20 that the shares were fairly valued at 11 times his 2011 earnings estimate.
Trustco has remained profitable through the credit crisis a long-term investor willing to patiently accept the attractive dividend while waiting, could be in for quite a strong return over the long haul. At the end of 2006, 2007 and 2008, shares were trading for more than three times tangible book value and more than 20 times earnings, according to SNL.
Disclosure information was not available for Van Doorn or his company.