10 Profitable Banks With Dividend Yields Up to 7.7% (Update 1)

Updated to include comments made by Credit Suisse analyst Moshe Orenbuch on Wednesday, following a meeting with JPMorgan Chase CEO James Dimon, in which the analyst discusses the company's return of capital to investors.

NEW YORK ( TheStreet) -- While many of the largest U.S. banks are expected soon to announce dividend hikes, TheStreet has identified 10 smaller profitable banks already paying out generous dividends to investors.

For investors seeking current income, the traditional route of high-quality corporate bonds, tax-exempt municipal bonds and preferred stocks may not cut it these days, with interest rates being stuck so low for so long. But some banks pay very attractive dividend yields on common stock, and careful investors who consider a company's long-term viability and capital strength may be able to lock in long-term cash cow.

With the Federal Reserve set to complete its stress tests and publicly announce the results next week, a slew of dividend hikes is expected during the second quarter.

Here's a quick roundup on what investors might be expecting for the "big four" U.S. bank holding companies, following the stress tests:

JPMorgan Chase ( JPM) is already paying a quarterly dividend of 25 cents, translating to an attractive a yield of 2.46%, based on Friday's closing price of $40.63. The dividend was increased from a nickel, last March. During 2011, the company's return of capital to investors also included $9 billion in stock buybacks.

During the company's Investor Day presentations last week JPMorgan Chase said its objective was to increase its dividend to a "30% payout ratio of normalized earnings over time." The company earned $4.48 a share during 2011. The consensus 2012 earnings estimate among analysts polled by Thomson Reuters is $4.68 a share, followed by estimated EPS of $5.44 in 2013. Looking at the 2013 estimate, a 30% dividend payout would be an annual dividend of $1.63. Of course, by that time the stock -- on Friday trading for just 1.3 times tangible book value, according to HighlineFI, and nine times the consensus 2012 EPS estimate -- seems likely to move higher, but for investors going in now, a 4% dividend yield on the original investment, over time, is quite reasonable.

Speaking about the company's overall plans for returning capital through dividends and buybacks, FBR analyst Paul Miller said last Thursday that "JPM clearly laid out that it has more than enough capital to meet the Fed's requirements for the stress test and Basel III, even if the company returns 50% of earnings back to shareholders." Miller also predicted that JPMorgan would raise its quarterly dividend by a nickel to 30 cents in the second quarter, "buy back approximately 50 million shares per quarter starting in 2Q12."

On Wednesday, Credit Suisse analyst Moshe Orenbuch said following a meeting with Dimon that JPMorgan's "capital levels are strong and management views the company as well positioned to both deploy capital, as well as meet Basel III minimums."

Orenbuch expects JPMorgan Chase "to be approved for incremental capital deployment activities," following the stress tests, and also expects "he company to reach 9.5% Basel III Tier 1 common equity during 2013, inclusive of continued share buyback." Achieving the full Basel III requirement at that early date "could ease some regulatory pressures and provide the company with some incremental flexibility around its capital priorities."

The analyst looks "for JPM to pursue a solid rate of capital return in 2012 at about 55% of total earnings in the form of dividends and buybacks."

Wells Fargo's ( WFC) current dividend yield is 1.54%, based on a quarterly payout of 12 cents and Friday's closing price of $31.28.

During the fourth quarter, the company repurchased 27 million common shares, with another 6 million in forward repurchases that were to settle during the first quarter.

Sterne Agee analyst Todd Hagerman said on Feb. 17 that coming out of the stress tests, "indications are that management will take a more measured and balanced approach to capital redeployment going forward, suggesting a bias towards dividends versus share buyback at current levels." Hagerman added that his "scaled-back capital distribution assumptions (35% total capital distribution for 2012 vs. 43% following 3Q11) reflect our expectations that buybacks will likely receive the most scrutiny, oversight, and control (hence the reduced buyback expectations for WFC next year)."

Credit Suisse analyst Moshe Orenbuch on Feb. 9 said that following the stress tests, he expected "an increase in the quarterly dividend to $0.22 per share," for Wells Fargo, along with " a share buyback program of $3 billion."

Citigroup ( C) is paying a token quarterly dividend of just a penny a share. Citi CFO John Gerspach said during a presentation at the Credit Suisse Financial Services Forum on Feb. 8 that "only $11 billion of our $51 billion in deferred tax assets is currently included in Tier 1 Common," and also that "math would suggest that about $24 billion of our regulatory capital should be eventually released as Citi Holdings winds down."

Citi Holdings is the subsidiary holding noncore assets that Citigroup is winding down as part of CEO Vikram Pandit's "good bank/bad bank" strategy of righting the company's balance sheet.

Consistent profits should allow the deferred tax assets recapture, and $64 billion in freed-up capital is, of course, a very significant figure. It's always fun to see what the big four say about each other, and Bank of America Merrill Lynch analyst Guy Moszkowski followed up on Gerspach's presentation on Feb. 8, saying that the freeing up of the $64 billion in excess capital "will take years." While he expects "some capital return" during 2012, Moszkowski is quite enthusiastic on Citigroup, with a "Buy" rating and $44 price objective, which would be a 29% gain from Friday's closing price of $34.10.

Bank of America ( BAC) is also paying a token penny dividend, and with the company's mortgage putback situation in flux, the Federal Reserve will have a tricky time approving a significant dividend increase this year.

Bank of America has been squabbling with Fannie Mae ( FNMA) over what the government-sponsored mortgage giant called a "failure to honor its contractual obligations in a timely manner."

In an apparently positive development for the company, the U.S. Court of Appeals for the Second Circuit on Feb. 27 issued a unanimous opinion that BofA's contested $8.5 billion settlement of Countrywide mortgage putback demands with private investors, should be decided upon, in New York State court.

Credit Suisse analyst Moshe Orenbuch said the decision was "a positive for Bank of America in that the settlement is more likely to be finalized according to its original terms," which were arrived at, last June. Since the settlement was "structured under New York State law," Bank of America can settle with the entire trust, rather than with individual investors. Bank of New York Mellon is the trustee that agreed to the original $8.5 billion settlement.

Assuming the settlement is finalized, one more piece of Bank of America's mortgage puzzle will be solved, and since the company already set aside the settlement money last June, one more barrier to a higher dividend payout will be removed.

Using data provided by HighlineFI, we pared down the list of highest-yielding bank and thrift stocks by only including names with average daily trading volume of over 30,000 that also showed positive returns on assets for each quarter during 2011.

This group, for the most part, has underperformed a hot banking sector this year. Then again, during a dismal 2011 for the entire banking sector, 7 of the ten saw single-digit declines, while maintaining or raising their dividend payouts, while the KBW Bank Index ( I:BKX) declined 24%.

Here is the TheStreet's select list of 10 bank and thrift holding companies with high dividend yields :

10. City Holding Corp.

Shares of City Holding Co. ( CHCO) of Cross Lanes, W.V., closed at $32.95 Friday, down 2% year-to-date, after a decline of 3% in 2011.

Based on a quarterly payout of 35 cents, the shares have a dividend yield of 4.25%.

The shares trade for 1.9 times tangible book value, according to HighlineFI, and 12.5 times the consensus 2012 earnings estimate of $2.64 cents a share, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $2.76.

The company had $2.3 billion in total assets as of Dec. 30. Its quarterly returns on average assets (ROA) ranged from 1.41% to 1.71% during 2011, according to HighlineFI, for the best earnings performance among this group of 10 bank and thrift holding companies.

Six out of seven analysts covering City Holding Co. have neutral rating on the shares. Sterne Agee analyst Kenneth James has an "Underperform" rating on City Holding Co., with a $28 price target, saying on Feb. 13 that he sees "potential for downward estimate revisions in 2012," from the "heightened potential for a new round of regulatory scrutiny on deposit service charges." Please see TheStreet's coverage of the Consumer Financial Protection Bureau for more about regulatory threats to bank's fee revenues.

James is behind the consensus, estimating that City Holding Co. will earn $2.46 a share in 2012, followed by EPS of $2.58 in 2013.

Interested in more on City Holding Co.? See TheStreet Ratings' report card for this stock.

9. Renasant Corp.

Shares of Renasant Corp. ( RNST) of Tupelo, Miss., closed at $14.46 Friday, declining 4% year-to-date, following a decline of 7% in 2011.

Based on a quarterly payout of 17 cents, the shares have a dividend yield of 4.70%.

The shares trade for 1.2 times tangible book value and 14 times the consensus 2012 EPS estimate of $1.02. The consensus 2013 EPS estimate is $1.13.

The company had $4.2 billion in total assets as of Dec. 30, and its quarterly ROA ranged from 0.54% to 0.63% during 2011, according to HighlineFI.

Wunderlich Securities analyst Kevin Reynolds rates Renasant a buy, with an $18 price target, saying in January after the company posted fourth-quarter earnings of 23 cents a share, saying the company "experienced slight loan growth, lower sequential expenses, and considerable improvements in nonperforming loans (current levels at a 13-quarter low) and past due loans."

Reynolds added that Renasant was "well positioned for long-term growth fueled by both continued organic growth as well as additional acquisitions."

Interested in more on Renasant Corp.? See TheStreet Ratings' report card for this stock.

8. Peoples United Financial

Shares of Peoples United Financial ( PBCT) of Bridgeport, Conn., closed at $12.72 Friday, for a flat year-to-date return, after a decline of 4% in 2011.

Based on a quarterly payout of 15.75 cents, the shares have a dividend yield of 4.95%.

The company had $27.6 billion in total assets as of Dec. 30, and its quarterly ROA ranged from 0.63% to 0.82% during 2011, according to HighlineFI.

The company last Tuesday announced a deal to acquire 56 branches from Citizens Financial Group, including 52 branches located in Stop & Shop supermarkets, on Long Island, New York City and in Westchester County, as well as other Upstate New York counties. People's United already operates 87 Stop & Shop branches in Connecticut.

The Citizens branch deal is expected to be completed late in the second quarter, with People's United paying $3.25 million in cash and assuming $325 million in deposits.

The shares trade for 1.5 times tangible book value and 16 the consensus 2012 EPS estimate of 80 cents. The consensus 2013 EPS estimate is 94 cents.

Morgan Stanley analyst Ken Zerbe said after the branch deal was announced that "while the net impact is fairly small, it shows PBCT is still actively looking at deals." The analyst added that "the value add will be in 2014 or beyond as PBCT: 1) redeploys the cash into loans, and 2) increases the deposits per branch from the $4 mil under Citizens to its own average of $29 mil, and redeploys that cash into loans as well." Zerbe has an "Equal Weight" rating on Peoples United.

Sterne Agee analyst Damon Delmonte rates the shares "Outperform," with a $14 price target, and said last Thursday after a presentation at the KBW Boston Bank Conference by Peoples United CEO Jack Barnes and CFO Kirk Walters, that "management has set aggressive profitability and operating goals for the banks as it aims to lower the efficiency ratio to 55% by middle of 2013, which would help drive the ROA to 1.25% in 2014."

With a strong capital base, Delmonte said that "PBCT remains well positioned to further expand its current scale. Despite having a solid presence through much of New England, the bank's recent shift into New York provides it with significant revenue potential."

Interested in more on Peoples United Financial? See TheStreet Ratings' report card for this stock.

7. Trustco Bank Corp.

Shares of Trustco Bank Corp. ( TRST) of Glenville, N.Y., closed at $3.63 Friday, returning down 6% year-to-date, following a 7% decline in 2011.

Based on a quarterly payout of 6.5625 cents, the shares have a dividend yield of 5.05%.

The company had $4.2 billion in total asset as of Dec. 30, and its quarterly ROA ranged from 0.77% to 0.88% during 2011, according to HighlineFI.

The shares trade for 1.4 times tangible book value and 12 the consensus 2012 EPS estimate of 43 cents. The consensus 2013 EPS estimate is 49 cents.

Trustco earned $8.7 million during the fourth quarter, or 9.3 cents a share, declining from $9.2 million, or 10 cents a share, in the third quarter, but increasing from $6.9 million, or nine cents a share, in the fourth quarter of 2010. The sequential earnings decline reflected a $551,000 increase in expenses for salaries and employee benefits, and "a $450 thousand one-time item that increased the effective tax rate and is not expected to be repeated in 2012."

Trustco's net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and wholesale borrowings -- narrowed to 3.35% from 3.38% the previous quarter and 3.43% a year earlier, however, net interest income increased 6% year-over-year to $34.0 million in the fourth quarter, reflecting not only lower interest expenses, but a 6% increase in average loans during the fourth quarter.

Interested in more on Trustco Bank Corp.? See TheStreet Ratings' report card for this stock.

6. Univest Corp. of Pennsylvania

Shares of Univest Corp. of Pennsylvania ( UVSP), of Souderton, closed at $15.24 Friday, returning 4% year-to-date, following a 20% decline last year.

Based on a 20-cent quarterly payout, the shares have a dividend yield of 5.25%.

The shares trade for 0.9 times tangible book value and 12 times the consensus 2012 EPS estimate of $1.28.

The company had $2.2 billion in total assets as of Dec. 30, and its quarterly ROA ranged from 0.86% to 0.99% during 2011, according to HighlineFI.

Fourth-quarter net income was $5.3 million, or 32 cents a share, increasing from $5.2 million, or 32 cents a share, the previous quarter, and $4.9 million, or 30 cents a share, a year earlier.

The fourth-quarter net interest margin was 3.96%, narrowing from 4.15% in the third quarter and 4.18% during the fourth quarter of 2010, "primarily due to a 67 basis point decrease in the ratio of average interest-earning assets to interest-bearing liabilities." The company said that excess liquidity "generated from the increases in public funds deposits, calls of investment securities and lower loan volume from continued light credit demand were invested in interest-earning deposits as the Corporation continues to keep the investment portfolio short."

Interested in more on Univest Corp. of Pennsylvania? See TheStreet Ratings' report card for this stock.

5. Valley National Bancorp

Shares of Valley National Bancorp ( VLY) of Wayne, N.J, closed at $12.36 Friday, for a flat year-to-date return, following a 4% decline during 2011.

Based on a quarterly payout of 17 cents, the shares have a dividend yield of 5.50%.

The shares trade for 2.3 times tangible book value and 16 the consensus 2012 EPS estimate of 79 cents. The consensus 2013 EPS estimate is 84 cents.

The company had $14.2 billion in total assets as of Dec. 30, and its quarterly ROA ranged from 0.70% to 1.04 during 2011, according to HighlineFI.

Valley completed a major expansion on Jan. 1, with its acquisition of State Bancorp -- the holding company for State Bank of Long Island -- which had $1.6 billion in total assets, with 16 branches in Nassau and Suffolk counties, as well as in New York City. Valley paid roughly $208 million for State Bancorp, in an exchange of shares.

Morgan Keegan analyst Ebrahim Poonawala rates Valley "Market Perform," with $13 price target, saying on Jan. 27 that the company is "focused on growing the bank, despite a tough operating environment with VLY reporting improving loan growth momentum for the quarter with period end loans up 1.9% sequentially," and is "remaining on the sidelines where its sees inadequate returns or irrational competition (has been relatively inactive in indirect auto lending in 2011 due to intense pricing competition)."

Poonawala also said that Valley's objective of achieving cost savings of roughly 25% of State Bancorp's $40 million in annual expenses is "a manageable goal."

Regarding the stability of the dividend, the analyst said that "although the current dividend represented an 87% payout ratio of FY11 EPS, above the bank's historical levels of around 55-60%, we consider the common dividend to be manageable given the favorable outlook on credit and relatively stable" earnings before loan loss reserve provisions and taxes.

Interested in more on Valley National Bancorp? See TheStreet Ratings' report card for this stock.

4. Park National Corp.

Shares of Park National Corp. ( PRK) of Newark, Ohio, closed at $66.29 Friday, returning 3% year-to-date, after a decline of 5% in 2011.

Based on a 94-cent quarterly payout, the shares have a dividend yield of 5.67%.

The company had $7.0 billion in total assets as of Dec. 30, and its quarterly ROA ranged from 1.02% to 1.19% during 2011, according to HighlineFI.

The shares trade for 1.8 times the company's reported Dec. 30 tangible book value of $37.13 and for 13 times the consensus 2012 EPS estimate of $5.26. The consensus 2013 EPS estimate is $5.20.

On Feb. 16, Park National completed the sale of its Florida subsidiary, Vision Bank, to Home Bancshares ( HOMB) of Conway, Ark., for $27.9 million, while retaining the subsidiaries nonperforming loans. Park National said it would record a "pre-tax gain of approximately $22 million, net of anticipated expenses directly related to the transaction, and increase its already strong capital ratios by approximately 100 basis points."

Park National earned $11.7 million, or 76 cents a share, during the fourth quarter, declining from $18.9 million, or $1.23 a share, during the third quarter, but improving from a net loss of $4.9 million, or 32 cents a share, during the fourth quarter of 2010.

Vision Bank was undercapitalized, with a very high level of nonperforming loans. Removing that unit will obviously smooth the way forward for Park National, with its strong Ohio operations. Meanwhile, the company has restated its 2010 and 2011 results, "recognition of loan loss provisions and other real estate owned devaluations at Vision Bank in 2010 instead of 2011."

Net income for 2011 was $78.9 million, or $5.12 a share, compared to a revised $52.3 million, or $3.45 a share, in 2010.

The company reported a tangible common equity ratio was 8.29% as of Dec. 30, increasing from 7.69% a year earlier.

Interested in more on Park National Corp.? See TheStreet Ratings' report card for this stock.

3. Astoria Financial

Shares of Astoria Financial ( AF) of Lake Success, N.Y., closed at $8.72 Friday, returning 4% year-to-date, after a decline of 36% in 2011.

Based on a quarterly payout of 13, the shares have a dividend yield of 5.96%.

The shares trade for just 0.8 times tangible book value, but 26 times the consensus 2012 EPS estimate of 53 cents. The consensus 2013 EPS estimate is 65 cents.

Astoria had $17 billion in total assets as of Dec. 30, and was the weakest earnings performer during 2011, among this group of 10 profitable holding companies, with ROA ranging from 0.28% to 0.39%. The company's fourth-quarter net interest margin was 2.20%, narrowing from 2.32% a year earlier.

Janney Capital Markets analyst Rick Weiss on Feb. 14 reiterated his "Buy" rating on Astoria, with a $10 fair value estimate, saying that "Astoria's stock price heavily discounts the company's intrinsic value, which is derived from its very attractive market area." Weiss added that the company's "better asset quality and okay capital levels should be adequate to support the dividend" until earnings improve.

Weiss said "the dividend payout ratio will be quite high for the foreseeable future, but even aggressive banking regulators are not apt to ignore supervisory guidelines and force a dividend cut as long as the economy does not seriously worsen." The analyst also said his recommendation and price target for Astoria reflect "Astoria's attractive dividend and takeover appeal."

Interested in more on Astoria Financial? See TheStreet Ratings' report card for this stock.

2. New York Community Bancorp

Shares of New York Community Bancorp ( NYB) of Westbury closed at $13.03 Friday, returning 7% year-to-date, following a decline of 30% during 2011.

Based on a quarterly payout of 25 cents, the shares have a dividend yield of 7.67%.

With the company paying out 92% of its earnings during 2011, New York Community Bancorp has seen media reports questioning the viability of the dividend on an almost quarterly basis. Then again, the company has maintained the 25-cent dividend for 32 consecutive quarters.

The company had $42 billion in total assets as of Dec. 30.

New York Community Bancorp's reported ratio of tangible stockholder's equity to tangible assets, excluding accumulated other comprehensive losses, was 7.95% as of Dec. 30, increasing from 7.90% a year earlier.

So, during a time of strict scrutiny of dividends by federal regulators, how safe is New York Community Bancorp's dividend? In a report on Feb. 27 on Dime Community Bancshares ( DCOM), after that Brooklyn, N.Y., thrift holding company announced that its main subsidiary Dime Savings Bank of Williamsburg would switch from a federal thrift charter to a state charter, pending regulatory approval, KBW analyst Matthew Clark said DCOM's move made him "feel better about NYB's dividend."

Clark said that "We believe the New York state's more friendly approach to local banks in recent months suggests to us that the regulator is unlikely to be more critical of NYB's dividend payout ratio all of a sudden.

New York Community Bancorp's shares trade for 1.9 times tangible book value and 12 the consensus 2012 EPS estimate of $1.05. The consensus 2013 EPS estimate is $1.11.

The company's earnings have been remarkably consistent, with a focus on multifamily lending in the New York City area. The ROA ranged from 1.15% to 1.17% during 2011.

Interested in more on New York Community Bancorp? See TheStreet Ratings' report card for this stock.

1. First Financial Bancorp

The holding company on our select list with the highest current dividend yield is First Financial Bancorp ( FFBC) of Cincinnati.

With a very strong capital position, First Financial's board of "authorized a 100% payout ratio that will consist of two parts: a recurring dividend based on our stated payout ratio of 40% - 60% of earnings; and a variable dividend that will equal the remainder of our quarterly earnings," and the company said "the variable dividend is expected to continue until we have acquisitions or organic capital utilization rates that equal or exceed our capital generation rates."

Based on the regular quarterly dividend of 12 cents, plus the variable 19-cent dividend to be paid on April 2, 2012, to shareholders of record as of March 2, First Financial's dividend yield is 7.70%, based on Friday's closing price of $16.11.

First Financial's shares returned a negative 1% year-to-date through Friday's close, following a 5% decline in 2011.

The shares trade for 1.6 times tangible book value and 13 times the consensus 2012 EPS estimate of $1.22. The 2013 EPS estimate is $1.29.

The company had $6.7 billion in total assets as of Dec. 30.

KBW analyst Christopher McGratty rates First Financial "Market Perform," with a $17 price target, and said on Monday that "FFBC is well-positioned to "accretively deploy its excess capital" through an acquisition, while remaining "a disciplined and patient buyer." The analyst added that "the company will continue to take advantage of organic growth opportunities as management indicated its loan pipelines remain healthy" during a recent presentation by First Financial CFO Frank Hall.

First Financial's numbers speak for themselves. The company's ROA ranged from 1.02% to 1.10% during 2011, and FFBC has been profitable for 85 consecutive quarters. The company's tangible common equity ratio was a solid 9.23% as of Dec. 30.

Interested in more on First Financial Bancorp? See TheStreet Ratings' report card for this stock.

>>To see these stocks in action, visit the 10 Profitable Banks With Dividend Yields Up to 7.7% portfolio on Stockpickr.

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

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

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.
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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