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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 (RBS) shares are owned by the British government. That amounts to 90.6 billion shares. Similarly 41% of Lloyd’s Bank (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:

Company

Ticker

Country

Dividend Yield as of April 16, 2010

Allied Irish Banks AIB Ireland N/A
Banco Bilbao Vizcaya Argentaria BBVA Spain 5.35%
Banco Bradesco BBD Brazil 0.54%
Banco de Chile BCH Chile 6.46%
Banco Macro BMA Argentina 2.13%
Banco Santander Brasil BSBR Brazil 4.68%
Banco Santander Chile SAN Chile 3.90%
Banco Santander S.A STD Spain 8.44%
Bancolombia CIB Colombia 2.68%
Bank of Ireland IRE Ireland N/A
Barclays Bank BCS United Kingdom 1.58%
BBVA Banco Frances BFR Argentina 0.77%
Corpbanca BCA Chile 8.40%
Credit Suisse CS Switzerland 0.18%
Deutsche Bank DB Germany 1.36%
Grupo Financiero Galicia GGAL Argentina N/A
HDFC Bank HDB India 0.43%
HSBC HBC United Kingdom 3.73%
ICICI Bank IBN India 1.12%
Itau Unibanco Holding ITUB Brazil 0.37%
KB Financial KB Korea N/A
Lloyds Banking Group LYG United Kingdom N/A
Mitsubishi UFJ Financial MTU Japan 2.48%
Mizuho Financial MFG Japan 5.14%
National Bank of Greece NBG Greece N/A
Royal Bank of Scotland RBS United Kingdom N/A
Shinhan Financial SHG Korea N/A
UBS UBS Switzerland N/A
Westpac Banking WBK Australia 4.09%
Woori Finance WF Korea 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.

Source: On the Importance of Bank Yields: A Look at Foreign Bank Stocks