Dividend plays are a very popular investment choice, especially among long term oriented investors. Often times when people think of dividend investments, names such as Procter & Gamble(PG), Kimberly Clarke (KMB), and Chevron (CVX) come up. I enjoy all of these companies, and have written articles entitled "Buy and Hold: The Story for Procter & Gamble" and "Why You Should Add Chevron to Your Portfolio", but often there are more, less discussed dividend plays. Banks and Financial companies are often overlooked for dividend investing, as many investors see big banks as complicated and risky. What investors often miss are small, regional banks that pay excellent dividends. Smaller banks are much easier to follow, as they are primarily balance sheet based businesses. When the balance sheet of a local bank is appealing, more than likely the earnings report will be as well.
Four regional and smaller banks that pay excellent dividends include TrustcoBank (TRST), KeyCorp (KEY), Flushing Financial (FFIC), and Chemung Financial Corp(CHMG). These four banks are primarily focused and operating in the state of New York, but do have operations expanding outside to other nearby states.
1.) Trustco Bank Corp - TrustcoBank is headquartered in Glenville, NY and focuses the majority of its business in the Capital District of New York. The bank has been in existence for over 100 years, and has expanded considerably since its beginnings as Schenectady Trust Company. The bank now has operations throughout upstate and downstate New York, Massachusetts, Vermont, New Jersey, and Florida. Trustco has consistent double digit return on equity, and was actually expanding during the financial crisis of 2008. Trustco has done an incredible job of both expanding into new markets, and being incredibly cost conscious. Trustco has a price to book ratio of just 1.49. Recent reports show excellent results. Net income of $37.5 million is up 13.4% from prior year while pre-tax earnings are up 14.5%. Average deposits and loans were up $172 million and $150 million, respectively for 2012 compared to the prior year. Trustco's capital levels remain strong, and their efficiency ratio remains among industry leaders at 52% in 2012, compared to 50% in 2011. Trustco currently trades at 14 times earnings, and pays a 4.59% dividend yield. Trustco has also seen substantial insider buying. Trustco believes they will continue their traditional lending and conservative balance sheet management, which should allow expansion. The company plans on continuing to focus on growth, as the current economic environment should eventually become more favorable.
2.) Keycorp- KeyCorp is larger than most regional smaller banks. The company provides services across the country, with 1,088 full service branches in 14 different states, with 1,611 ATMs in 15 different states. KeyCorp has also recently acquired 37 retail banking branches in Western New York, as well as Key-branded credit card assets from Elan Financial Services, Inc. 2012 was a good year for KeyCorp, with excellent balance sheet and financial performances. The balance sheet continued to strengthen and grow, credit quality measures improved to pre-financial crisis levels, and all strategic and financial goals were accomplished. Revenues grew 4% in 2012, compared to prior year. This led to an increase in net interest margin as well as an increase in fee revenues. Key grew by 10% in Q4, and even expanded net interest margin by 24 basis points from the same period a year ago. Loan growth was another strong point, particularly in commercial loans which grew at 21%. In addition, credit quality improved, with net charge offs declined by 26% in 2012 in comparison to 2011. Charge offs were at the best level since 2007, prior to the financial crisis. KeyCorp does an excellent job at keeping their loan loss reserve as a percentage of total loans down. In 2012 the loan loss reserve ratio was just 1.66%. KeyCorp trades at a multiple of 13.64, but only pays a dividend yield of 1.83%.
3.) Flushing Financial- Flushing Financial owns Flushing Savings, with branches in Queens, Brooklyn, Manhattan, and Nassau County, New York. Flushing Financial focuses primarily on one to four family mortgages, commercial real estate loans, and multifamily property loans, which are in high demand in the New York City area. Recently, Flushing Financial announced a stock repurchase plan, as well as a dividend. The stock repurchase plan is set to effect 1,000,000 shares of its common stock. The stock should be purchased from time to time, in the open market through private transactions, and are subject to market conditions. There is no maximum dollar amount for the repurchase. Previously, Flushing had purchased about 367,000 common shares. The dividend will be issued at $.13 per share, and was paid on June 28th 2013, to all shareholders of record as of June 7th. Going forward, Flushing hopes to continue their emphasis on the organization of multi-family residential mortgages, and explore opportunities and expand in their commercial banking operations. Flushing has a price to book ratio of about 1.2, compared to an industry average of 2.54. The company trades at about 15 times earnings, and pays a 3% dividend yield.
4.) Chemung Financial Corp- Chemung Financial Corp encompasses more than just a commercial bank. The company also provides a range of financial services, including insurance, mutual funds, and brokerage services. The Chemung Canal Trust Company is a full service community bank, including core banking and wealth management. The core banking segment collects deposits and issues loans for residential and commercial real estate. Chemung's largest weakness is their large amount of competition. Competition exists in all areas, from savings and loans, commercial funding, investment management companies, and others. Many of these competitors are not subject to as much regulation as a commercial bank may be, which ultimately effects business. Other major risk factors include economic growth in the areas in which they operate(which has not been great), as well as the risk of a falling amount of new developments and commercial loans in the area. Recent large news for Chemung which may prove to be a catalyst was a recent acquisition. Chemung recently acquired six new branches in central New York, from the Bank of America (BOA). The branches are located in Auburn, Cortland, Ithaca, and Seneca Falls, NY. As part of the deal, Chemung will acquire nearly $261 million in deposits and $1.8 million in loans. Chemung has announced a stock repurchase plan in addition to their quarterly dividend. The dividend was just announced and was paid on July 1st to all shareholders of record as of June 17th 2013. The dividend payout was $.26 per share. Chemung has a price to book ratio of just 1.13, which is very low in comparison to its competitors. Chemung trades at a multiple of about 15, and yields about 3.17%.
Small banks are definitely the best way of investing in financial companies in current market conditions. Mortgages represent the majority of small banks business, which is why smaller banks were hurt disproportionately during the financial crisis in comparison to larger investment and commercial banks. The improving housing market could play a large role in increasing profits for these banks. As credit improves, housing stabilizes, and the employment picture gets better, more people should be buying homes.
Based on the information I presented above, I think Trustco may be the best purchase of the group. It offers a substantial dividend yield, great balance sheet, and lean operations. Further research on these four names is recommended if you are looking for a safer way of investing in financial companies. Investing in the smaller regional banks over the large big name banks tends to be preferable by many investors.
Please note this article is for information and entertainment purposes only, and is not to be used as investment advice.