2 Foreign Banks Yielding At Least 4.5% Income Investors Should Consider

|
 |  Includes: BLX, BMO
by: Matt Schilling

As a majority of major U.S. banks are once again facing scrutiny in the midst of the LIBOR scandal, I wanted to examine two of their international counterparts. I strongly believe that the foreign banking sector has great growth potential, not only from an income standpoint, but also from a fundamental standpoint. For this screen, I established the following three criteria:

  • Minimum Profit Margin Must Be At Least 25.00%
  • Minimum Return On Equity (ROE) Must Be 13.00%
  • Minimum Dividend Yield Must Be At Least 3.50%

Banco Lationamericano de Comerico Exterior, S.A. (NYSE:BLX) - Shares of Banco Lationamericano closed trading at $20.75/share during Thursday's session, making the stock pretty attractive at current levels. Trading in a 52-week range of $14.81/share (52-week low) and $22.41/share (52-week high), Banco Lationamericano recently reported earnings of $0.61/share on revenue of $23.20 million for the second quarter.

I am attracted to Banco Lationamericano for three reasons. First, the company currently yields 4.5% ($1.00) and considering the yields of company's U.S.-based counterparts such as Citigroup Inc. (NYSE:C) (0.10%) and JPMorgan Chase & Co. (NYSE:JPM) (3.4%), it is certainly the best of the three from an income standpoint. Second, if the company continues to surpass analysts' EPS estimates, as has been the case over the last three quarters, the second half of 2012 could provide some very nice returns to shareholders. Finally, the company currently carries a profit margin of 65.34%, which in my opinion is excellent.

One of the key catalysts for the company is growth. Analysts are estimating Banco Lationamericano will grow at a rate of 38.6% for the quarter and 15.6% for the year. If the company continues to surpass both EPS and revenue estimates, I see no reason why it can't in turn surpass growth estimates.

Bank of Montreal (NYSE:BMO): Shares of Bank of Montreal closed trading at $57.12/share during Thursday's session, making the stock pretty attractive at current levels. Trading in a 52-week range of $50.95/share (52-week low) and $65.79/share (52-week high), Bank of Montreal recently announced a debt buyback offer of its 7.50% Subordinated Notes due 2013.

When it comes to Bank of Montreal, there are three reasons as to why I am attracted at current levels. First, the company currently yields 4.8% ($2.75) and considering the yields of company's U.S.-based counterparts such as JPMorgan Chase (3.4%) and Bank of New York (NYSE:BK) (2.4%), it is certainly the best of the three from an income standpoint. Second, if the company continues to surpass analysts EPS estimates, as has been the case in three of the last four quarters, the second half of 2012 could provide some very nice returns to shareholders. Finally, the company currently carries a profit margin of 26.10%, which in my opinion is a very good catalyst.

One of the key catalysts for Bank of Montreal is growth. Analysts are estimating Bank of Montreal will grow at a rate of 0.7% for the quarter and 5.9% for the year. If the company continues to surpass both EPS and revenue estimates, I see no reason why it can't in turn surpass growth estimates by 50% for the quarter and 25%-40% for the year.

Disclosure: I am long BMO.