It's not very often investors come across a high-yielding regional bank that primarily functions as a traditional Savings & Loan. That said I'm pretty sure New York Community Bankcorp (NYB) fits into that description, which happens to be a very good thing for several reasons:
First, the bank isn't going to be subjecting customer assets in an effort to fortify their derivative position, as was the case with the so-called 'London Whale' and JPMorgan Chase (JPM).
Second, they are going to provide the traditional banking functions of most S&L banks (some of the functions include but are not limited to; a traditional checking account, a traditional savings account, and loans that aren't as complicated as most tax laws).
Lastly, and certainly not least, they are going to give income investors a fantastic yield, 7.9% ($1.00) on a stock with relatively low daily volume (3.1 million shares traded on average per day).
During my research I wanted to establish a few key components of a screen, not only to highlight the banks great yield but to show that are several secondary angles investors could use when establishing a position. For this screen I established the following criteria:
- Minimum Dividend Yield Must Be At Least 7.00%
- Minimum Profit Margin Must Be At Least 30.00%
- Minimum Return on Equity (ROE) Must Be At Least 7.50%
NYB clearly met and surpassed all three of the above criteria for this report. The company current yields 7.9%, and pays an annual dividend of $1.00/share, which is paid quarterly at a rate of $0.25/share. The yield is currently 12.85% higher than the minimum set forth in the screen. The company has also demonstrated Profit Margins of 35.86% over the last 12 months, which are currently 19.5% higher than the minimum requirements of the screen. Lastly, the company has demonstrated a Return on Equity of 8.55% over the last 12 months which is 14% higher than the requirements set forth in the screen.
Growth Through Acquisitions
Expanding its business through the practice of acquiring other financial institutions has always been one of the bank's main objectives. Most recently NYB acquired $2.2 billion dollars in deposits from Aurora Bank. That acquisition also included the payment to NYB of $24 million dollars for specifically acquiring $1.4 billion dollars in certificate of deposits, which are also known as CDs, $768 million dollars in retail CDs, and another $13 million dollars in money market accounts. It was also announced in mid-May, that the bank would be actively looking to expand through series of larger acquisitions that meet the criteria set forth by CEO Joseph Ficalora.
As an income driven investor it's always best to compare the company in focus with several of its industry counterparts. In this case I've compared NYB's yield and dividend to three S&L banks that have yields higher than 5.00%.
Of the four banks examined I'd consider a definite position in NYB from an income standpoint. That said, I'd be cautious to approach Hudson City Bancorp (down nearly 31% for the year) because there's a very good chance that the stock will miss EPS estimates and fall even further from current levels, which could result in reduction of the company's dividend. Hudson City Bancorp should also be approached cautiously simply because of its EPS history over the last four quarters. With the September quarter missing estimates by just over 5% and the three remaining quarters coming relatively flat, we could also see a reduction in the company's dividend based on EPS trends. Lastly, Flushing Financial Corp., which was downgraded in June by Raymond James, has missed EPS estimates in three of the last four quarters, which leads to believe that either company will explore the possibility of a dividend cut to preserve some of its cash.
Potential investors looking to establish a position in NYB should do so from an income standpoint and as both earnings and dividend dates approach add additional shares to that position. Even though growth estimates are calling for the stock to remain flat during the quarter investors should consider the inherent growth the company's dividend provides.
Disclosure: I am long NYB.