March 11, 2010
– Comments (4) |
RELATED TICKERS: BAC
My thoughts on authorities' admonition against raising dividends/ share buybacks.
Alex Dumortier, CFA
Maybe, buyback preferred stock if the yields are high.
Erratum -- The title of this blog post should of course read:
Bank Shareholders: Forget a Dividend Increase
Good article, Alex.
On balance, though, it might have been worth mentioning that there are some smaller, regional banks that are producing attractive yields well above 1%. Just by way of illustration, I am long FWV, which at its current price is producing a yield of 5+%. And FWV is not an isolated case. A quick screen on Vanguard with the following parameters of:
Positive profitablility in the trailing twelve months
P/E ratio below industry average
Debt/Equity ratio < 25%
produces nearly forty issues. Obviously, not all of these will stand up to further scrutiny and due diligence (any recent dividend cuts, current high payout ratios, etc.). However, I'm confident that at least a handful would.
One element of risk in these issues is that they are, for the most part, small cap and thinly traded. So one has to accept that these issues don't possess the same trading liquidity as larger stocks, and their prices can be subject to moderate up and down movement on a per trade basis. However, if one is investing long in the banking industry with the idea of capturing a good, safe yield, these stocks may present an opportunity, regardless of whether they raise their dividends in the short-to-intermediate future.
Thanks for your comment -- I quite agree!
Although it was not explicitly stated in the original FT article that reported this news, my impression is that the regulators' warning was directed towards banks that had received some type of aid durnig the credit crisis (TARP, TLGP).