5 Bank Dividend Stocks Ripe After the Pullback

NEW YORK ( TheStreet) -- Several profitable banks with attractive dividend yields saw their shares pull back significantly during the first half of 2011, and in a prolonged low-rate environment, are worth a second look by income-seeking investors and for growth investors who can commit for the long haul.

Some bank stocks with attractive dividend yields showed weakness because investors were concerned about increasing dividend payout ratios.

One very well-known name for investors hungry for dividends was Hudson City Bancorp ( HCBK) of Paramus, N.J., which reported a first-quarter net loss of $555.6 million and reduced its quarterly dividend to 8 cents a share from 15 cents a share, after the Office of Thrift Supervision forced the company to restructure its balance sheet after the company's long-term leverage strategy of borrowing from the Federal Home Loan Bank of New York and investing the proceeds in securities backfired.

Hudson City closed at $8.19 Thursday, with the shares dropping 34% during the first half of 2011. Based on that price, the shares have a dividend yield of 3.91%.

To come up with our list, we began with publicly traded U.S. bank stocks with dividend yields exceeding 4%, with three-month average daily trading volume of more than 50,000 shares, and then isolated the five names that pulled back the most during the first half of 2011. We left out one name that has no analyst coverage.

All data was provided by SNL Financial.

All five of these bank holding company stocks are trading above 11 times the 2012 consensus earnings estimates among analysts polled by FactSet. The relatively high dividend yields support much higher multiples than investors are seeing for the largest banks.

Looking at the "big four" U.S. banks, with continued exposure from mortgage putback claims, increasing regulatory capital requirements and various threats to revenue, the price multiples are strikingly low, and likely to remain that way until the group settles the bulk of investors' mortgage claims and U.S. regulators finally settle on enhanced capital requirements.

For Bank of America ( BAC), the price-to-forward earnings ratio was 6.6, based on Thursday's closing price of $10.96 and a consensus 2012 earnings estimate of $1.68 a share. Shares of JPMorgan Chase ( JPM) closed at $40.94 Thursday, for a forward P/E of 7.2, based on the consensus 2012 earnings estimate of $5.61 a share.

Shares of Citigroup ( C) closed-out the second quarter at $41.64, or eight times the consensus 2012 earnings estimate of $5.20 a share.

The most expensive relative to forward earnings among the "big four" was Wells Fargo ( WFC), at 8.2 times the consensus 2012 earnings estimate of $3.42, when the shares closed Thursday at $36.02.

Here are the five actively traded bank dividend stocks seeing significant pullbacks during the first half of the year, sorted by ascending dividend yield.

5. City Holding Company

Shares of Citi Holding Company ( CHCO) of Charleston, W.V. closed at $33.03 Thursday, down 7% for the first half of 2011. Based on a quarterly payout of 4.12%, the shares have a dividend yield of 4.12%.

The company's dividend payout ratio -- first-quarter declared dividends divided by earnings-per-share -- was 58.84%, according to SNL Financial. This is the lowest first-quarter payout ratio among the five bank holding companies listed here.

The company had $2.7 billion in total assets as of March 31, with 68 branches in West Virginia, Kentucky, and Ohio.

First-quarter net income was $9.6 million, or 62 cents a share, increasing from $9.3 million, or 58 cents a share, during the first quarter of 2010. The consensus among analysts polled by FactSet is for City Holding Company to earn 60 cents a share for the second quarter.

City Holding Company's first-quarter return on average assets (ROA) was a healthy 1.41%, and was the highest among these five holding companies. The company's tangible common equity ratio of 9.63% was also highest among the group.

The shares trade for 12.7 times the consensus 2012 earnings estimate of $2.60 a share. A mean 12-month price target of $35 implies 7% upside for the shares. That may be an unexciting figure, but investors will also get an annual payout of over 4% for their time, also taking comfort in consistent earnings, as City Holding Company's ROA has exceeded 1.3% over the past five quarters.

RBC Capital Markets analyst Gerard Cassidy has a neutral rating of "Sector Perform" on City Holding Company, saying on April 27 (after the shares had closed at $33.98 the previous day) that "the current valuation adequately reflects our estimate for earnings growth in 2011, and that "the company also deserves a small premium for acquisition potential, given its market position in West Virginia. Based on Cassidy's 2011 earnings estimate of $2.58, the analyst used a multiple of 12 times earnings to arrive at a price target of $31.

All eight analysts rate City Holding Company a hold, pretty much agreeing that the shares are fully valued.

So why consider an investment in City Holding Company? For one thing, a yield above 4% is nothing to sneeze at in a prolonged low-rate environment, and with a low payout ratio, strong, consistent earnings and solid capital base a dividend increase could easily be supported.

City Holding Company is likely to continue building capital, to feed organic expansion or acquisitions, both of which would have a good chance of leading to increases of earnings estimates, which would support a higher share price. The stock is a conservative pick in the current environment, with support from the dividend, capital and earnings, and a lack of mortgage risk, with its associated headline risk.

4. Chemical Financial Corp.

Shares of Chemical Financial Corp. ( CHFC) of Midland, Mich., closed at $18.76 Thursday, down 14% for the first half of the year. Based on a quarterly payout of 20 cents, the shares have a dividend yield of 4.26%.

The company had $5.3 billion in total assets as of March 31, with over 140 branches in the Lower Peninsula of Michigan, and added $820 million in assets and another 14 branches in Ottawa, Allegan and Kent counties in west Michigan, when it acquired O.A.K. Financial on April 30, for $83.7 million in stock.

First-quarter net income was $9.2 million, or 33 cents a share, increasing from $2.3 million, or 10 cents a share, a year earlier. The main factor in the earnings improvement was a decline in the provision for loan losses to $7.5 million during the first quarter, from $14 million a year earlier.

The first-quarter ROA was 0.69% and the dividend payout ratio was 61%. This was the best ROA and lowest payout ratio over the past year.

The shares trade for 12 times the consensus 2012 earnings estimate of $1.56. A mean 12-month price target of $21.50 among analysts polled by FactSet implies 15% upside for the share over the next year. That's in addition to the yield of over 4% investors will receive while waiting.

All three analysts covering Chemical Financial have neutral ratings on the shares. KBW analyst Christopher McGratty reiterated his "market perform" or "hold" rating for Chemical Financial on April 18 after the earnings announcement, with a target price of $21, saying that the first-quarter results were "solid," and that the company was "well positioned to deploy its excess capital position through acquisitions over the intermediate term."

Chemical Financial is another well-positioned bank for investors to consider, despite all the neutral ratings. One thing to keep in mind is that analysts' ratings and targets generally have a 12-month horizon. For an investor looking to enjoy a decent dividend payout on a stocks with limited downside, Chemical could be a worthy choice, for a commitment of several years.

3. Renasant Corp.

Shares of Renasant Corp. ( RNST) of Tupelo, Miss., closed at $14.49 Thursday, down 12% for the first half of 2011. Based on a quarterly payout of 17 cents, the shares have a dividend yield of 4.69%.

Renasant had $4.4 billion in total assets as of March 31, with over 60 offices in Mississippi, Tennessee, Alabama and Georgia.

The company announced on June 29 that it agreed to acquire Royal Bank of Canada ( RBC) unit RBC Bank (USA)'s Birmingham, Ala.-based trust department, in a deal expected to close in August. Renasant will gain about 200 accounts representing $680 in assets under management, to bring the company's total trust assets under management to about $1.5 billion.

During the first quarter, Renasant earned $7.6 million, or 30 cents a share, increasing from $3.6 million, or 1 cents a share, in the first quarter of 2010. The increase in earnings mainly reflects the increased revenue from the company's acquisition of the failed Crescent Bank & Trust Company of Jasper, Ga., from the Federal Deposit insurance Corporation, in July, 2010.

Renasant also purchased the failed American Trust Bank of Roswell, Ga., from the FDIC, in February, taking on $248 million in assets, along with three branches.

The company's first-quarter ROA was 0.68% and its dividend payout ratio was 57%.

After the trust deal with RBC was announced, Sterne Agee analyst Peyton Green maintained his neutral rating for Renasant, saying the "trust acquisition should help RNST build scale in an existing business and growth markets," and that based on a conversation with the company's management, his firm "would expect trust revenue to jump by ~$2 million annualized."

The shares trade for 11.4 times the consensus 2012 earnings estimate of $1.27 a share. A mean price target of $17.25 among analysts polled by FactSet implies 19% upside for the shares.

Out of 10 analysts covering Renasant Corp., two rate the shares a buy, while the remaining analysts all have neutral ratings.

Kevin Reynolds of Wunderlich Securities rates Renasant a buy, with a $20 price target, saying in an April report that the company had a "solid" first quarter, and basing his target price on a multiple of 1.7 times projected tangible book value of $11.57 a share at the end of 2011.

2. United Bankshares

United Bankshares ( UBSI) of Charleston, W.V., saw its stock pull back 14% during the first half of the year, closing Tuesday at $24.48. Based on a quarterly payout of 30 cents, the shares have a dividend yield of 4.90%.

The company had $7.2 billion in total assets as of March 31, with over 110 branches in West Virginia, Virginia, Washington, D.C., Maryland and Ohio

On June 20, United Bankshares announced that the Federal Reserve had approved its deal to acquire Centra Financial Holdings of Morgantown, W.V., in an exchange of shares valued at $187 million. Centra Financial has roughly $1.4 billion in total assets, with 15 branches in the four markets United Bankshares is currently operating in, as well as in Pennsylvania. The deal is expected to be completed in the third quarter.

First-quarter net income was $17.9 million, or 41 cents a share compared to $17.4 million, or 40 cents a share, a year earlier. The first-quarter ROA was 1.01% according to SNL, and the dividend payout ratio was 73%.

After the company announced its first-quarter results in late April, SunTrust Robinson Humphrey analyst Jennifer Debma maintained her neutral rating for United Bankshares, "in light of still‐rising NPAs and a rich valuation."

The shares trade for 13.6 times the consensus 2012 earnings estimate of $1.79, for the highest forward P/E among this group of five bank holding companies. A mean price target of $26.50 among analysts polled by FactSet implies 8% upside for the shares.

All nine analysts covering United Bankshares rate the stock a hold.

1. New York Community Bancorp

Shares of New York Community Bancorp ( NYB) of Westbury closed at $14.99 Thursday, pulling back 18% for the first half of the year. Based on a quarterly payout of 25 cents, the shares have a dividend yield of 6.67%.

The company had $41 billion in total assets as of March 31, with 276 branches in New York, New Jersey, as well as in Florida, Arizona and Ohio, which New York Community expanded into as part of its acquisition of the deposits and some of the assets of the failed AmTrust bank in December 2009.

First-quarter net income was $123.2 million, or 28 cents a share, declining from $124.1 million, or 29 cents a share earlier. The ROA for the first quarter was 1.21%, and has ranged between 1.17% and 1.46% over the past five quarters. The dividend payout ratio for the first quarter was 89% according to SNL, and has ranged between 74% and 86% over the past five quarters.

According to CEO Joseph Ficalora, the decline in earnings from 34 cents a share in the fourth quarter reflected lower mortgage banking income "due to a substantial decline in residential refinancing activity as mortgage interest rates rose throughout the quarter, and to the continuation of very weak home purchase activity across the United States," as well as an increase in the loan loss provision "in connection with the reappraisal of properties collateralizing certain large loan relationships."

Mortgage banking revenue totaled $19.9 million in the first quarter, declining from $40.4 million in the fourth quarter and $27.5 million in the first quarter of 2010.

While most of this year's decline in New York Community Bancorp's share price can be attributed to concern over the high dividend payout ratio, the company has managed to maintain the dividend, even through much more difficult periods, for the past 28 quarters. With the acquisition of the failed AmTrust acquisition, the company was able to reduce its reliance on wholesale borrowings and improve its net interest margin, and the mortgage banking business acquired as part of the AmTrust deal has boosted earnings, supplementing the company's traditional focus on multifamily mortgage lending in New York City.

On June 15, after Ficalora presented at his firm's SMID Conference, Macquarie (USA) Equities Research analyst Thomas Alonso reiterated his buy rating for New York Community and $18 price target, saying "we continue to view the dividend as safe, particularly since the holding company is already Fed regulated and there have been no issues to date with the dividend, and we look for continued strong earnings."

The shares trade for 11.3 times the consensus 2012 earnings estimate of $1.33 a share, which is the lowest forward P/E among the five bank holding companies discussed here. Based on a mean price target of $18.43 among analysts polled by FactSet, the shares have 23% upside, and of course, that doesn't include the very attractive dividend yield.

Out of 18 analysts covering New York Community Bancorp, 10 rate the shares a buy, seven have neutral ratings, and one analyst recommends selling the shares.

Over the past few years, there have been several dips in New York Community Bancorp's shares, that have presented wonderful opportunities for long-term investors to load-up on the cheap. New York Community's unique niche of making loans collateralized by apartment buildings in the New York City area with below-market rents, has led to a remarkably stable earnings stream for decades, with very low loan losses and a consistently high return for investors.

>>To see these stocks in action, visit the 5 Bank Dividend Stocks Ripe After the Pullback portfolio on Stockpickr.

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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