Banks Stocks Offer Investors Attractive Yields

Includes: FFBC, UBSI
by: Weiss Ratings

by Weiss Ratings

While a series of recent banking scandals and exorbitant fines may have further damaged the industry's reputation, investors seeking income can still find very attractive yields from bank stocks. According to a new study by Weiss Ratings, a portfolio of the highest dividend-paying bank stocks can generate more than the 1.93% average yield of the S&P 500.

In a review of 1,164 publicly traded banks yielding an average of 2.26%, Weiss analyzed those with above-average returns, good market liquidity and solid financial strength. The study found 270 banks had a dividend yield of at least 3% as of August 15, 2012. Starting with the 95 having at least $1 billion or more in assets, Weiss then factored in an average one-month daily volume greater than 50,000 shares and a Weiss Financial Strength Rating of B- ("Good") or higher to identify the 20 highest dividend-paying bank stocks.

Among the banks included in the Weiss portfolio of highest dividend-paying stocks: First Financial Bancorp., Cincinnati, Ohio, (NASDAQ:FFBC), United Bankshares, Inc., Charleston, WV (NASDAQ:UBSI) and Oritani Financial Corp., Township of Washington, NJ, with dividend yields of 7.26%, 4.79% and 4.17%, respectively.

Beyond dividends, some of these stocks offer good value buys for savvy investors. Segmenting the list further, Weiss removed any stocks that did not meet the following criteria:

  • current stock price off its 52-week high
  • current stock price to tangible book value less than 1.5X

The resulting portfolio represents the seven bank stocks that Weiss believes will offer investors the most attractive returns.

Institution Name 1 City State Ticker Dividend Yield (%) Weiss Financial Strength Ratings 2
First Financial Bancorp. Cincinnati OH FFBC 7.26 B-
Northwest Bancshares, Inc. Warren PA NWBI 4.10 B
Washington Banking Company Oak Harbor WA WBCO 4.03 B-
Simmons First National Corporation Pine Bluff AR SFNC 3.44 B
First Busey Corporation Champaign IL BUSE 3.32 B-
Westfield Financial, Inc. Westfield MA WFD 3.29 B-
First Community Bancshares, Inc. Bluefield VA FCBC 3.05 B-

1. Name of the publicly traded holding company, which may be different than the operating subsidiary.

2. Weiss Financial Strength Rating is for the individual operating subsidiary of the holding company shown in Column 1 based on 3/31/2012 data.

So, despite the latest round of punches to the banking industry's reputation, savvy investors should not run for the hills or away from all bank stocks. Scandals aside, the data is in and, compared to the overall market, the banking sector offers some exceptional income opportunities as well as solid values for investors interested in long-term price appreciation.

View the 20 highest dividend-paying bank stocks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.