Traditionally investors have been attracted to utilities and bank stocks for their dividends and stable growth. However the past couple of years have shown that many financial stocks do not fall into that category any more.
Despite the so-called recovery, several foreign banks have not resumed paying dividends. Since dividends come out of profits, this is a better indicator of performance than most other factors. Some of the foreign banks are majority-owned by the government after they were bailed out with billions in capital infusion. Hence these banks are under restrictions to pay out dividends to investors even if they turn a profit.
For example, 84% of Royal Bank of Scotland (NYSE:RBS) shares are owned by the British government. That amounts to 90.6 billion shares. Similarly 41% of Lloyd’s Bank (NYSE:LYG) is owned by the government amounting to 27.6 billion shares. When these holdings are sold, investors can expect further erosion in share prices from current levels.
The table below lists the current yields of foreign bank ADRs listed on the organized US exchanges:
Dividend Yield as of April 16, 2010
|Allied Irish Banks||AIB||Ireland||N/A|
|Banco Bilbao Vizcaya Argentaria||BBVA||Spain||5.35%|
|Banco de Chile||BCH||Chile||6.46%|
|Banco Santander Brasil||BSBR||Brazil||4.68%|
|Banco Santander Chile||SAN||Chile||3.90%|
|Banco Santander S.A||STD||Spain||8.44%|
|Bank of Ireland||IRE||Ireland||N/A|
|Barclays Bank||BCS||United Kingdom||1.58%|
|BBVA Banco Frances||BFR||Argentina||0.77%|
|Grupo Financiero Galicia||GGAL||Argentina||N/A|
|Itau Unibanco Holding||ITUB||Brazil||0.37%|
|Lloyds Banking Group||LYG||United Kingdom||N/A|
|Mitsubishi UFJ Financial||MTU||Japan||2.48%|
|National Bank of Greece||NBG||Greece||N/A|
|Royal Bank of Scotland||RBS||United Kingdom||N/A|
Note: Information posted above is known to be accurate. Please do your own research before making any investment decisions. Canadian banks are excluded from this list.
Hence investors have to be highly selective when picking up bank stocks. Since most of them have risen significantly from last March’s low, further price increases must be accompanied by higher profits and not just expansion in P/E. It is a good idea to keep an eye on reinstatement of dividend payments from those that don’t pay dividends now as well as any dividend increases from current dividend payers.