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Last November, shortly after the Dow peaked at 14,280 points, I had a post on dividend yields of the largest banks in the country. At that time, I thought that, with many bank stocks yielding 6.0% or more, buying banks made some sense if the banks can keep their dividend payouts.

That was then and we all know what has happened since.

Big banks like Citibank (NYSE:C) and Washington Mutual (NYSE:WM) were hit hard by billions of write-downs tied to bad loans and literally had to be bailed out by foreign investors. At the same time, shares of these banks have plunged to multi-year lows with no end in sight (just when you thought it may be over, another shoe dropped). To have an idea on how bad things have been in the past year for big banks, take a look at the following plot, showing 1-year performances of the big-three: Citigroup, Bank of America (NYSE:BAC), and J. P. Morgan Chase (NYSE:JPM), against the Dow Jones U.S. Finance Index [^DJUSFN].


As banks eliminated thousands of jobs and sold billions of assets in order to shore up capital, they also cut back dividend distributions, which we can also see as an inevitable step taken in desperation (nobody wants to follow the fate of Bear Stearns (NYSE:BSC)). So the above assumption - 'banks will hold their dividends' - no longer holds. However, the reduction in dividend payout doesn’t mean the yield will follow because share prices of many banks have fallen even further.

At the time when the subprime mortgage triggered financial crisis approaches its one-year anniversary,  I looked again at dividends of some of the largest banks in the country and to my surprise (well, I am not really surprised), I found that the yields have gone even higher, though many financials have cut their dividends by half (for example, Citigroup by 41%, WaMu by 72%). Of course, the increased yield is at the expense of the falling share price (see last column in the following table - 1-yr return - only two are positive).

Name Yield (%) Price 1-yr return (%)
Bank of America (BAC) 9.9 $25.88 -43.7
J. P. Morgan Chase (JPM) 4.1 $36.87 -21.8
Citigroup (C) 9.3 $18.55 -62.8
Wachovia (NASDAQ:WB) 13.6 $16.92 -65.2
Wells Fargo (NYSE:WFC) 5.1 $24.26 -27.9
Washington Mutual (WM) 21.56 $5.96 -85.4
U.S. Bancorp (NYSE:USB) 5.7 $28.90 -9.1
Suntrust Banks (NYSE:STI) 8.4 $35.94 -56.9
Capital One Financial (NYSE:COF) 2.0 $39.52 -49.9
National City (NCC) 20.8 $4.99 -84.3
Regions Financial (NYSE:RF) 13.8 $10.87 -65.1
BB&T (NYSE:BBT) 7.7 $24.04 -38.4
PNC Financial Services (NYSE:PNC) 4.5 $56.55 -18.4
State Street (NYSE:STT) 1.4 $66.53 -1.4
Fifth Third Bancorp (NASDAQ:FITB) 17.1 $10.05 -74.2
Keycorp (NYSE:KEY) 13.5 $11.0 -66.7
Bank of New York Mellon (NYSE:BK) 2.4 $40.10 1.0
Northern Trust (NASDAQ:NTRS) 1.5 $70.79 12.2
Comerica (NYSE:CMA) 9.5 $27.5 -51.1
Marshall & Ilsley (NYSE:MI) 7.4 $16.83 -63.5
M&T Bank (NYSE:MTB) 3.9 $72.19 -30.4
Union Bank of Calif. (UB) 4.9 $42.29 -26.5
Sovereign Bank (SOV) 2.0 $8.15 -62.0
Zions Bancorporation (NASDAQ:ZION) 5.5 $31.09 -59.2
Huntington Bancshares (NASDAQ:HBAN) 16.0 $5.80 -71.3

If you are an existing shareholder of any of those big banks (I own BAC), you obviously are not happy with how your stock has performed lately despite the high yield. If you are not an owner but are considering buying some bank stocks, the following financial ETFs can be alternatives to individual bank stocks:

  • Financial Select Sector SPDR (NYSEARCA:XLF): 1-yr return -39.8%
  • iShares Dow Jones US Financial Sector (NYSEARCA:IYF): 1-yr return -36.7%
  • iShares Dow Jones US Financial Services (NYSEARCA:IYG): 1-yr return -42.4%
  • iShares Dow Jones US Regional Banks (NYSEARCA:IAT): 1-yr return -42.4%
  • PowerShares Dynamic Banking (NYSEARCA:PJB): 1-yr return -23.14%
  • PowerShares Financial Preferred (NYSEARCA:PGF): 1-yr return -14.3%
  • Ultra Financials ProShares (NYSEARCA:UYG): 1-yr return -65.6%
  • Vanguard Financials ETF (NYSEARCA:VFH): 1-yr return -35.7%