Selloff Can't Tarnish Banks' Yields

A sharp selloff in the financial stocks has investors diving for dividend yield.

The KBW bank index, which follows the large-cap bank stocks, is down 6% this month, and the Amex broker-dealer index, which tracks the big brokerage houses, is off 7%.

The swoon has confounded some investors, coming as it does during a run of strong earnings for the group. JPMorgan Chase JPM has dropped more than 10% in two weeks since it posted stronger-than-expected second-quarter earnings. Goldman Sachs GS is down 12% over the same period and almost 20% below last month's 52-week high.

"The second quarter was one of the best quarters in some time in terms of beats/misses," writes Lori Appelbaum, an analyst at Goldman Sachs. Yet "the results clearly did not translate to better stock price performance, as the group traded down amid broader market credit fears."

The selloff has some investors focusing on high-quality names that pay out big dividends. Among the names that come up repeatedly in discussions with fund managers are CitigroupC, Bank of AmericaBAC, Wells FargoWFC and WachoviaWB.

Last week, Bank of America upped its quarterly dividend by 14%, to 64 cents a share, while Wells Fargo raised its payout 11% to 31 cents. But the number many investors look at more closely is dividend yield -- the annual dividend rate divided by the recent stock price.