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5 Buy-Rated Bank Stocks With Safe and Solid Dividends (Update 1)

Updated with ratings cuts on JPMorgan Chase and Dime Community Bancshares, by Raymond James analyst Anthony Polini.

NEW YORK ( TheStreet) -- A conservative analysis of bank stocks with "Buy" recommendations from TheStreet Ratings highlights five names easily covering attractive dividend payouts.

TheStreet Ratings takes a very conservative, long-term approach to stock ratings, placing its emphasis on long-term total returns as well as revenue trends and capital strength and dividends. The ratings also consider short-term performance, financial stability and volatility.

After previously covering three mid-cap bank stocks with A (Excellent) ratings and seven small-cap names assigned coveted A-plus ratings, we have isolated the highest-yielding bank stocks with "recommended" ratings of B-plus or higher, whose quarterly payouts are less than 50% of their first-quarter earnings per share.

There are plenty of higher-yielding bank stocks out there, and some of them have "Buy" recommendations from TheStreet Ratings. A prime example is New York Community Bancorp (NYB) of Westbury. Based on a 25-cent quarterly payout, the shares had a dividend yield of 8.64% at Monday's closing price of $11.57, which was the highest dividend yield for any U.S. bank or thrift stock with average daily trading volume of over 40,000 shares, according to data provided by Thomson Reuters Bank Insight.

New York Community Bancorp reported first-quarter earnings per share of 27 cents, for a dividend payout ratio of close to 93%. Some analysts have expressed concern over the company's high payout ratio over the past several years, but the company has maintained the dividend for 33 straight quarters. Other feathers in New York Community Bancorp's cap include a long-term record for very strong loan quality, along with good, consistent earnings performance, with operating returns on average assets ranging from 1.13% to 1.21% over the past four quarters, according to Thomson Reuters Bank Insight.

Most analysts covering New York Community Bancorp are confident that the company will be able to maintain the dividend, with eight out of 23 analysts rating the shares a buy, while 12 have neutral ratings, two rate the shares "Underperform," and one analyst recommends selling.

Among the believers is Fred Cannon of KBW, who rates New York Community Bancorp "Outperform," with a $15 price target, saying in April after the company reported its first-quarter results that he still believed the company would be able to maintain the dividend, but that "to meet all goals, it seems that management has to grow earnings assets to be sure the dividend is covered," and that "if mortgage banking fees wane, NYB could be in a box with management having to grow earning assets even more to offset [net interest margin pressure, in the prolonged low-rate environment] while the [tangible common equity] ratio would likely be falling toward 7%."

New York Community has a deal in place to receive $24 million to assume $2.3 billion in deposits from Aurora Bank of Wilmington, Del.

Citigroup Analyst Josh Levin rates New York Community Bancorp a "Sell," and said on May 9 that "an accretive acquisition poses the largest risk to our investment thesis," but that "our analysis of NYB's previous acquisitions suggests that the risk is lower than our original assessment and that investors may be awarding NYB too much credit for potential future acquisitions."

Levin's price target for the shares is $11.00. The closing share price before Levin's report was published was $13.04, and the analyst said that his "sell thesis on NYB is predicated on the view that NYB's dividend is at greater risk of being cut than what is currently priced into the stock," and that it is "more likely than not" that regulators will force the company to cut the dividend, since it will be paying dividends equivalent to most or even more than its total earnings, while simultaneously expanding.

The five buy-rated names discussed below have dividend yields ranging from 3.79% to 4.41%, and while those figures may not be very impressive when compared to New York Community Bank's dividend yield, these companies are more likely to have the ability to increase their dividends over the next couple of years, and these yields are nothing to sneeze at, when you consider that 10-year U.S. Treasuries are yielding just a shade over 1.5%.

Here are the five buy-rated bank dividend stocks, in order of ascending dividend yield:
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