In the late 1990s, I was on the Board of Trustees for a
nonprofit educational organization. The board's primary
responsibility was to oversee the investment of the organization's
trust funds, worth roughly $5 million.
One of the trust funds was used to grant college scholarships. So
it was very important that the fund generate a steady stream of
income to cover the 50-plus scholarships funded every semester.
Even though it doesn't seem so long ago, so much has changed since
then. For one thing, we had only a fraction of the income-producing
choices investors have today. When it came to dividend-paying
equities, we had to rely on a handful of consumer blue-chip and
utility stocks. Oh -- and bank stocks. That's another thing that
Bank stocks were a stable and reliable source of dividends. They
were slow-growers, but could be counted on for solid, dependable
But banks -- specifically the large investment banks -- began to
take on higher and more leveraged risk. This made the banking
sector vulnerable when the housing bubble burst. And small banks
debt and small business loans took it on the chin as the crisis
turned into a
. More than 400 banks and thrifts have failed since the beginning
of 2008. And many once-stable dividends disappeared in the blink of
The banking sector has been slow to recover. For instance, the
Financial Select Sector
, which tracks an
of some of the largest U.S. financial institutions, is still
roughly 60% below the price it was five years ago.
That being said, some positive signs are emerging from the banking
sector, particularly among the regional banks. And now, I'm eyeing
them as potential additions to my income advisory,
The Daily Paycheck
In my role as chief investment strategist, I've turned $200,000 of
seed money into roughly $243,000 -- and counting -- since December
2009, simply by using a
And it's paying off...
So far, I've received $27,215.75 in dividend paychecks (last
month's paychecks totaled nearly $2,000 alone.) And the average
of a stock my portfolio is more than 7%.
Regional banks can oftentimes yield 7% or 8%, so when I see
evidence of resurgence in these once-reliable dividend payers, you
can bet I'm interested.
In the chart below, you can see that regional banks, as measured by
S&P Regional Banking SPDR ETF (NYSE:
, have started to outperform the bigger financial institutions. And
in the past year, KRE was able to catch up with the S&P
Why the rebound in this banking niche?
Regional banks aren't facing the same kind of legal issues
associated with the mortgage industry like their larger peers. And
some large financial institutions have decreasing revenue streams
because they have had to terminate their in-house trading
operations -- something regional banks never had.
Granted, it is still a challenging environment. Regional banks
aren't making as much on their customer deposits due to the low
interest-rate environment. And some regional banks are still
contending with nonperforming mortgage and business loans.
Stable and improving prices equity prices are a good sign. But it
takes more than that to make a
portfolio pick. It takes yield.
I specifically look for securities that yield 5% or more. With this
in mind, I conducted a screen of regional banks with a
of greater than $500 million and a
above 5%. The top five banks from my screen are listed below.
Risks to Consider:
Some of the stocks in this table have payout ratios that you
might find a little uncomfortable. If one of these banks faces
short-term headwinds and has an
shortfall, it may be forced to cut the dividend if it doesn't have
enough cash to cover the payment.
Action to Take -->
I look for investments that have solid track records for dividend
First Financial Bancorp. (Nasdaq:
has done a great job of growing its dividend in these challenging
times, leading me to name it in
The Daily Paycheck
as my top pick.
I'm not quite ready to jump in, though. I'd like to see a few more
months of stable economic and employment data. If that should
happen, then this sector is likely the first place I'll look. And
you can bet First Financial will be near the top of my list.
-- Amy Calistri
Amy Calistri does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.