Is it a "falling knife" if you get 7%?
I struggle with one question these days.... Will banks lower their dividend? Is the crunch hard enough to make bank stocks actually reduce the amount they pay to shareholders? I would love some feedback if you have any. Any income investor is probably salivating over these yields. Its almost too good - plus the knowledge that this "credit crunch" can't last forever - bank stocks must go up at some point. But when can you call the bottom?
The fundamental question for me is: When you can lock down these dividends? Let's take a look at just a handful of yields, as of today, shall we?
Citibank (C) = 7%
Wachovia (WB) = 6.4%
SunTrust (STI) = 4.5%
Washington Mutual (WM) = 14.4% (what?!?!?!)
US Bancorp (USB) = 5.1%
National City (NCC) = 9.4%
Key Corp (KEY) = 6.3%
Not many investors would pass WM up at a guarenteed 14.4% yeild. I think its fair to say that WM is so deep in this mess, that they can't keep shelling out cash. The dividend must change. What about Key Corp? National City --- are they really that bad off? At 9.4%? Oh boy, I want it. But I just can't pull the trigger.
So what's to predict here? If you look back at the S&L loan scandal, so many banks came out of that pretty clear. WM is essentially a loaner - I'd stay away. However, the others aren't that bad. This seems like an over-reaction to me. I'm looking to catch this falling knife. And if it cuts me, I'll be happy making 6-9% the whole time while I wait for the stock to recover. History proves that bank stocks always recover. They always recover. That's right. They always recover. One more time? Nah. You get it.