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In 2007 the financial sector was responsible for $51 billion in dividend payments to shareholders. By 2010, that amount had decreased to just $19 billion. The mortgage crisis forced many banks to cut or even suspend dividend payments. Returning the clock to present day, it is hard not to get excited about the potential for bank stocks in the current market. The Financial Sector ETF (XLF) has gained nearly 20% since the beginning of the year. The majority of banks are passing the government mandated "stress tests" and dividend payments are increasing on a regular basis once again.

I took a chance on a rebound in the sector in 2011 by buying stock in PNC Financial Services Group (PNC). I have since been rewarded with a 20% increase in the stock price and, more importantly to me, a 26% increase in dividends. Based on the current market I am very bullish on the banking industry and its potential for dividend growth. I have been researching additional dividend growth opportunities and have narrowed down my search to a handful of candidates across the industry.

Multinational U.S. Banks

I considered these two banks previously before deciding to invest in PNC. These are two of the largest banks in the U.S. with a nationwide and international presence.

Wells Fargo & Company (WFC)

Wells Fargo & Co provides banking, insurance, investment, mortgage and consumer finance services throughout North America

  • Current Dividend Yield: 3.0%
  • Paid a dividend since:* 1939
  • Latest Quarterly Dividend Increase: 20%
  • Dividend Payout Ratio TTM : 26%

JPMorgan Chase & Co. (JPM)

JP Morgan Chase & Co is a financial holding company that provides various financial services worldwide.

  • Current Dividend Yield: 2.9%
  • Paid a dividend since:* 1827
  • Latest Quarterly Dividend Increase: 27%
  • Dividend Payout Ratio TTM : 21%

Multinational Canadian Banks

Despite the additional foreign tax that is withheld from dividend payments as well as the slight fluctuation in quarterly dividend payments, Canadian banking stocks present a good value and higher yields that are very appealing.

The Toronto-Dominion Bank (TD)

The Toronto-Dominion Bank provides financial and banking services in North America and internationally.

  • Current Dividend Yield: 4.0%
  • Paid a dividend since:* 1857
  • Latest Quarterly Dividend Increase: 5%
  • Dividend Payout Ratio TTM : 42%

Bank of Montreal (BMO)

Bank of Montreal provides various retail banking, wealth management, and investment banking products and services in North America and internationally.

  • Current Dividend Yield: 4.8%
  • Paid a dividend since:* 1829
  • Latest Quarterly Dividend Increase: 3%
  • Dividend Payout Ratio TTM : 45%

The Bank of Nova Scotia (BNS)

The Bank of Nova Scotia provides various personal, commercial, corporate, and investment banking services in Canada and internationally.

  • Current Dividend Yield: 4.1%
  • Paid a dividend since:* 1834
  • Latest Quarterly Dividend Increase: 5%
  • Dividend Payout Ratio TTM : 43%

Regional / Community Banks

Due to their smaller size, regional and community banking stocks can easily be overlooked by investors despite demonstrating strong performance and financial stability.

First of Long Island Corp. (FLIC)

First of Long Island is a full service commercial bank which provides a broad range of financial services to individual, professional, corporate, institutional and government customers through its branch system on Long Island and in Manhattan.

  • Current Dividend Yield: 3.2%
  • Paid a dividend since:* 1990
  • Latest Quarterly Dividend Increase: 9%
  • Dividend Payout Ratio TTM : 43%

Sandy Spring Bancorp Inc. (SASR)

Sandy Spring Bancorp operates a full line of financial services through a network of 49 community offices in the Washington, DC area.

  • Current Dividend Yield: 3.0%
  • Paid a dividend since:* 1996
  • Latest Quarterly Dividend Increase: 14%
  • Dividend Payout Ratio TTM : 34%

Conclusion

It's interesting to see the similarities among the stocks in each of these three groups. WFC and JPM each have had strong dividend growth while paying around 3% yield. TD, BMO and BNS all are paying 4% or more with similar payout ratios but have had increases in the low single digits. FLIC and SASR are each paying around 3% with higher dividend increases, but do not have near the dividend history that the larger banks have.

Since I already hold PNC I am leaning towards diversifying away from the large U.S. banks despite WFC and JPM's impressive dividend growth. SASR and FLIC have made strong comebacks from the recent financial crisis and still appear to have room for dividend growth based on their current payouts. I must admit I am very intrigued by the Canadian Banks' 4%+ yields. Although BMO's most recent dividend growth has been the weakest of the group, the 4.8% yield is far above the others and hard to ignore.

Investors seeking dividend income and lower volatility will want to take a closer look at TD, BNS, and BMO. Investors looking for more dividend growth and potential price growth should consider WFC, JPM, FLIC, and SASR. I believe that no matter what banking stock you choose, you are likely in for more good times ahead as the industry continues to rebound.

References:

* Dividend Investor.com

All other data referenced came from morningstar.com

Source: 7 Banking Stocks To Buy For Current Yield And Future Dividend Growth