The financial services sector, the second-largest sector weight in the S&P 500, has impressed in 2012. One widely-followed gauge of the sector's alpha-generating capabilities, the Financial Services Select Sector SPDR (XLF), has surged 25.6 percent year-to-date.
Impressive are the performances notched by many money-center banks because the group is still controversial and prone to negative headlines. This has brought news of Libor-gate, the London Whale, job cuts and assorted other issues that have had the public relations teams at major banks working overtime.
Even amid escalating fears about the fiscal cliff, XLF has managed to gain almost seven percent in the past month. That might have investors wondering if financials can keep the good times rolling next year and, perhaps more importantly, where the sector's compelling dividend opportunities can be found.
Bank of America (BAC) Bank of America has been the epitome of reversed fortune in 2012. In 2011, this was the Dow's worst-performing stock. This year, the shares have nearly doubled and will easily be the blue-chip index's best performers this year. In the past month alone, Bank of America has rallied 20.6 percent. Monday's close at $11 is the first time the stock has seen that area since the second quarter of 2011.
Bank of America is not without risks, chief among them $25.5 billion in unresolved mortgage claims stemming from the regrettable 2008 acquisition of Countrywide. Still, it should be noted the bank has easily met the capital requirements set forth by Basel III and at least one analyst sees room for significant dividend growth.
With an improved balance sheet, Atlantic Equities analyst Richard Staite sees BofA boosting dividends by enough next year to take the shares to a yield of 1.8 percent and 2014 dividend increases could bring the yield to a decent 3.4 percent, according to the TheStreet.com. Even 1.8 percent is a lot better than the current yield of 0.4 percent.
CorpBanca (BCA) With a market cap of almost $4 billion, CorpBanca engages in typical banking businesses such as checking and savings accounts as well as commercial and residential loans. At the end of last year, the company had almost 120 branches throughout Chile.
Those are nice statistics, but the real allure with CorpBanca is the dividend - both the yield and the growth. Shares of CorpBanca currently yield 6.1 percent. More importantly, the dividend paid by Chiles fourth-largest bank has surged fivefold since 2006.
CorpBanca is also worth a look because of its home in Chile. Sure, Chile can be viewed as "lower beta" than other emerging markets, but the real story as it pertains to CorpBanca is the fact that, because Chile does not have much in the way of public pensions, Chileans are voracious savers. In fact, the Chilean government forces public workers to save and that is a good thing for Chilean banks.
Oriental Financial Group (OFG) The smallest member of this list by market value, Oriental Financial's market cap is just $578 million. That diminutive status does not mean investors should stay away. Actually, among small-cap banks, Oriental Financial offers a solid story that has not gotten much attention to this point.
The company, which primarily does business in Puerto Rico, has been home to far more insider buying than selling in recent months, indicating management is bullish on the shares. Why not? Trading just below $13 means the stock goes for just two-thirds of its book value.
The yield is not impressive at 1.9 percent and that might be by virtue of a dividend cut during the financial crisis. However, Oriental Financial has raised its dividend twice since 2009.
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