10 Buy-Rated Bank Stocks With Highest Dividend Yields

NEW YORK ( TheStreet) -- It's dividend season for bank stocks.

Beginning with bank and thrift stocks rated a "buy" from TheStreet Ratings, we used data provided by Thomson Reuters Bank Insight to narrow the list down to the 10 banks paying the highest dividend yields, that also have average daily trading volume of at least 20,000 shares. This is a more aggressive approach than we have taken previously, with a lower trading volume threshold. In previous bank dividend stock lists we also limited the names to those paying out less than a certain percentage of earnings.

TheStreet Ratings takes a very conservative, long-term approach to stock ratings, placing its emphasis on total returns as well as revenue trends, capital strength and dividends. The ratings also consider short-term performance, financial stability and stock-price volatility. A rating of B-minus (Good) or above, is equivalent to a "buy" rating.

This time around, many of the names have high dividend payout ratios, however, all had decent operating returns on average assets of close to 1.00% or higher during 2012. Several of these banks have pending deals to acquire local competitors.

Stress Tests Mean Higher Dividends

For the largest U.S. Banks, the Federal Reserve will announce the results of its annual stress tests on March 7. A more important date for investors is March 14, when the Fed will announce the results of the Comprehensive Analysis and Review (CCAR), which incorporates the big banks' capital plans into the stress tests.

Most of the big banks subject to CCAR are expected to announce dividend increases and/or stock buybacks on March 14. Last year, three of the stress-tested banks had their capital plans rejected, including Citigroup ( C), SunTrust ( STI), and Fifth Third ( FITB). Those banks had to wait until August for approval of their revised 2012 capital plans, with only Fifth Third Bancorp receiving approval for a dividend increase.

Citigroup and Bank of America ( BAC) are each paying a nominal quarterly dividend of just $0.01 a share, and didn't buy back any shares during 2012. With both companies continuing to go through major transitions, opinion is mixed on the level of capital returns investors can expect this year.

JPMorgan Chase analyst Vivek Juneja in a report Jan. 15 estimated that Citigroup would be approved to increase its quarterly dividend to $0.20 and that Bank of America would raise its quarterly dividend to $0.04. Juneja also estimated that Citigroup would be approved to repurchase $4.425 billion in common shares through the first quarter of 2014, with Bank of America being approved to buy back $3.950 billion worth of shares.

Oppenheimer analyst Chris Kotowski in a Feb. 4 report said he "would counsel investors to have guarded expectations" for the two companies' capital returns, as "the industry's recent history suggests that the banks get let out of the penalty box only very slowly." Kotowski estimates that Citigroup will be approved to raise its quarterly dividend to $0.10 and that Bank of America will raise its dividend to $0.03, with neither company being approved for any buybacks through the first quarter of 2014.

The Highest Dividend Payers

The big banks get most of the headlines and several are expected to see their dividend yields approaching or exceeding 3.00% this year. But their yields aren't likely to go that much higher because the Federal Reserve -- at least for the time being -- prefers that the big boys don't pay dividends amounting to more than roughly 30% of their earnings.

Among smaller banks not subject to the Fed's scrutiny and limits, there are many players that have managed to maintain much higher dividend yields for years.

Investors and analysts at times will question the ability of some of these banks to maintain high dividend payouts, but all of these companies are steady earners, which is reflected in the "buy" ratings from TheStreet Ratings.

Here are the TheStreet's 10 buy-rated banks with the highest dividend yields, ordered by ascending yield:

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