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New York Community Bancorp's 'Dividend is Safe': KBW

NEW YORK ( TheStreet) -- New York Community Bancorp (NYCB - Get Report) is well-positioned to continue paying its very high dividend on common shares, according to KBW analyst Collyn Gilbert.

New York Community's shares closed at $15.42 Monday, returning 24% this year, following a 14% return during 2012. Based on a quarterly payout of 25 cents, the shares have a dividend yield of 6.49%.

That is a mighty fat dividend yield for a bank stock, and even though the bank has paid out 25 cents a quarter for 38 consecutive quarters, some analysts have questioned the company's ability to maintain the dividend.

Gilbert rates New York Community "outperform" and on Monday raised her price target for the shares to $17 from $15, following a meeting last week with NYCB CEO Joseph Ficalora and CFO Thomas Cangemi. Gilbert left her 2014 earnings estimate for New York Community unchanged at $1.09.

The bank reported its net interest margin (NIM) expanded to 3.15% during the second quarter from 2.95% in the first quarter, but the margin was down from 3.30% a year earlier. But if prepayment penalties on multifamily mortgage loans were factored out, the second-quarter margin would have been 2.68%, narrowing from 2.74% the previous quarter, and 3.09% a year earlier.

New York Community earned $122.5 million during the second quarter, or 28 cents a share. Prepayment income was a record $44.4 million, "driven by robust refinancing activity."

In anticipation of a tapering of the Federal Reserve's net monthly purchases of $85 billion in long-term securities, the market yield on 10-year U.S. Treasury bonds has increased to 2.61% on Monday from 1.70% at the end of April. According to Gilbert, the bank is poised to benefit from a steepening yield curve. "We think the margin is poised to be higher than our current projections, as the core NIM appears to finally be stabilizing," she wrote in a note to clients on Monday.

New York Community reported a second-quarter return on average tangible assets (ROA) of 1.21% and a return on average tangible equity of 15.90%.

"NYCB indicated that it thought a 1.40% ROA is within reach," Gilbert wrote. "A 1.40% ROA would imply an EPS of $1.60. However, even a more conservative NIM assumption (which would include a 25 bps increase from our current 2014 projection), implies an EPS of $1.25."
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