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:

5. Community Trust Bancorp

Shares of Community Trust Bancorp ( CTBI) of Pikeville, Ky., closed at $32.68 Monday returning 12% year-to-date, following a 6% return during 2011. Based on a quarterly payout of 32 cents, the shares have a dividend yield of 3.79%.

The shares trade for 1.7 times tangible book value, according to Thomson Reuters Bank Insight, and for 12 times the consensus 2013 earnings estimate of $2.80 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $2.74.

Community Trust Bancorp had $3.7 billion in total assets as of March 31, and earned $11.9 million during the first quarter, or 77 cents a share, increasing from $9.9 million, or 64 cents a share during the fourth quarter, and $9.3 million, or 61 cents a share, during the first quarter of 2011. The company's first-quarter return on average assets (ROA) was 1.32%, compared to 1.09% the previous quarter, and 1.11% a year earlier. The first-quarter dividend payout ratio was 42%.

Hilliard Lyons analyst Ross Demmerle has a neutral rating on Community Trust Bancorp, saying on April 20 that the stock (priced at $32.08 on April 19) "has historically traded at a slight discount to its peers' price to tangible book valuation while today it is trading at a premium to the group," which may not be justified, since "the stock market has been clamoring for loan growth at financial institutions by sending their stock prices higher and that does not appear to be happening here right now."

Demmerle estimates the company will earn $2.84 a share this year, followed by 2013 EPS of $2.90.

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

4. JPMorgan Chase

Shares of JPMorgan Chase ( JPM) closed at $31.00 Monday, down 5% year-to-date, following last year's 20% decline. Based on a 30-cent quarterly payout, the shares have a dividend yield of 3.87%.

The shares trade just below tangible book value, and for less than six times the consensus 2013 EPS estimate of $5.38. The consensus 2012 EPS estimate is $4.42.

Following CEO James Dimon's disclosure on May 10 of $2 billion in second-quarter hedge trading losses -- a figure which may grow this quarter, as the company works to unwind its hedge trading positions -- JPMorgan on May 21 announced that it had suspended its share repurchase program, with Dimon saying "we intend to maintain the dividend." Following the completion of Federal Reserve stress tests in March, the company's board of directors had authorized $12 billion in share buybacks during 2012, with another $3 billion authorized for the first quarter of 2013. The company had completed $1.3 billion in buybacks through April 30.

Even with the expected weak second quarter results, JPMorgan's dividend seems quite safe, with the current 30-cent payout being only25% of its first-quarter EPS of $1.21.

JPMorgan's shares have declined 24% since closing at $40.74 before Dimon's announcement on May 10, and Bank of America Merrill Lynch analyst Guy Moszkowski said on May 21 (after the shares closed at $32.51) that the selloff was "overdone," with the shares trading below tangible book value, "despite the long-term return on tangible equity power of 15%+ we envisage."

Factoring in hedge trading "losses well in excess" of $5 billion, Moszkowski estimates that JPMorgan will earn $3.85 a share this year, followed by earnings of $4.87 during 2013.

Raymond James analyst Anthony Polini late on Tuesday lowered his rating for JPMorgan Chase to "Outperform" from "Strong Buy," while cutting his price target for the shares to $46 from $52, and lowering his 2012 earnings estimate to $4.45 a share from $4.70, and his 2013 EPS estimate to $5.10 from $5.48.

Polini said that while the valuation on the shares is "very attractive, we believe uncertainty related to macroeconomic issues and the aftermath of the hedge trading losses could undermine strong price appreciation over the near term."

Interested in more on JPMorgan Chase? See TheStreet Ratings' report card for this stock.

3. Bank of Hawaii

Shares of Bank of Hawaii ( BOH) of Honolulu closed at $44.22 Monday, returning 1% year-to-date, after a 2% decline during 2011. Based on a quarterly dividend of 45 cents, the shares have a yield of 4.07%.

The shares trade for 2.1 times tangible book value, and for 12 times the consensus 2013 EPS estimate of $3.56. The consensus 2012 EPS estimate is $3.54.

Bank of Hawaii had $13.8 billion in total assets as of March 31, and earned $43.8 million, or 95 cents a share during the first quarter, increasing from $39.3 million, or 85 cents a share the previous quarter, and $42.4 million, or 88 cents a share, a year earlier. The first-quarter dividend payout ratio was 47%.

The first-quarter ROA increased to 1.29% from 1.17% in the fourth quarter, and 1.32% during the first quarter of 2011.

The company repurchased 638,800 shares during the first quarter, for $30 million, and was authorized to buy back another $44 million worth of shares, as of March 31.

RBC Capital Markets analyst Joe Morford rates Bank of Hawaii "Outperform," with a $53 price target, and said in April after the company reported its first-quarter results that in addition to "a stronger margin and a lower provision, as well as leveraged lease sale gains and related tax credits, which together added ~$0.10/share" in earnings, "other highlights in the quarter included decent loan growth, well controlled expenses, and stronger fees led by mortgage banking."

Morford estimates that Bank of Hawaii will earn $3.45 a share this year and also during 2013.

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

2. NBT Bancorp

Shares of NBT Bancorp ( NBTB) of Norwich, N.Y., closed at $19.27 Monday, down 11% Year-to-date, following a 5% decline last year. Based on a quarterly payout of 20 cents, the shares have a dividend yield of 4.15%.

The shares trade for 1.6 times tangible book value, and for 11.5 times the consensus 2013 EPS estimate of $1.68. The consensus 2012 EPS estimate is $1.61.

NBT Bancorp had $5.8 billion in total assets as of March 31, and earned $13.65 million, or 41 cents a share, during the first quarter, declining slightly from $13.72 million, or 41 cents a share during the fourth quarter, and from $14.3 million, or 41 cents a share, during the first quarter of 2011. The first-quarter operating ROA was 0.96%, declining from 0.98% the previous quarter, and 1.06% a year earlier, according to Thomson Reuters Bank Insight.

The first-quarter dividend payout ratio was 49%.

The company in November agreed to acquire Hampshire First Bank ( HFBN) of Manchester, to pick up $273 million in assets and five New Hampshire branches, for $45 million in stock and cash. The deal is expected to be closed this month.

Guggenheim Securities analyst David Darst has a neutral rating for NBT, with $22 price target, saying on April 24 that first-quarter profitability remained "solid," but "underlying trends reflect a softer outlook for 2012," but that he "anticipates" recent branch acquisitions and the pending purchase of Hampshire First Bank "will contribute to earnings in 2013."

Darst estimate that NBT will earn $1.64 a share during 2012, followed by 2013 EPS of $1.71.

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

1. Dime Community Bancshares

Dime Community Bancshares ( DCOM) of Brooklyn, N.Y., has seen its stock return 3% year-to-date through Monday's close at $12.74, following a 10% decline last year. Based on a 14 cent quarterly payout, the shares have a dividend yield of 4.40%.

The shares trade for 1.4 times tangible book value, and for 11 times the consensus 2013 EPS estimate of $1.19. The consensus 2012 EPS estimate is $1.20.

The company had $4.0 billion in total assets as of March 31, and earned $10.2 million, or 30 cents a share during the first quarter, declining from $12.7 million, or 38 cents a share, in the fourth quarter, and $11.1 million, or 33 cents a share, in the first quarter of 2011. The sequential earnings decline reflected a seasonal spike in employee compensation expenses, as well as an increase in other expenses. The earnings decline also reflected the continued narrowing of Dime's net interest margin, to 3.47% in the first quarter, from 3.54% the previous quarter and 3.62% a year earlier, following the industry trend in the prolonged low-rate environment.

Sterne Agee analyst Matthew Kelley has a neutral rating on Dime Community Bancshares, saying on May 3 that he expects "the core net interest margin (ex prepayment penalties) will decline by 12 basis points (bp) in 2012 to 3.23%, and by an additional 10 bp in 2013 to 3.13%," adding that "the company's average yield on real estate loans equaled 5.62% in the most recent quarter; this compares to current multi-family origination rates in the 3.50%-4.00% range," and that "asset yield compression will continue to outpace funding cost reductions over the next several quarters."

Kelley expects the company to earn $1.21 a share this year, followed by earnings of $1.12 during 2013.

Barclays analyst Mark DeVries has a more positive view of Dime, with an "Overweight" rating and a $15 price target, saying on April 27 that "given the difficult interest rate environment, we believe DCOM has prudently managed its portfolio growth and interest rate risk," and that an improved loan pipeline of $145 million as of March 31 suggested "improved growth in 2Q12 as DCOM deploys excess liquidity."

DeVries estimates that Dime Community Bancshares will earn $1.26 a share during 2012 followed by 2013 EPS of $1.28.

Raymond James analyst Anthony Polini late on Tuesday cut his rating for Dime to to "Underperform" from "Market Perform," while leaving his 2012 EPS estimate of $1.20 and his 2013 EPS estimate of $1.15, unchanged.

Polini said that the company's "superior credit quality and balance sheet strength will likely take a back seat to a relatively weak outlook for EPS growth and a relatively high valuation."

Interested in more on Dime Community Bancshares? See TheStreet Ratings' report card for this stock.

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

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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.