5 Buy-Rated Bank Stocks With Highest Dividend Yields

NEW YORK ( TheStreet) -- Heading into third-quarter earnings season, this is a good time for a periodic look at quality bank stocks paying out the highest dividends to investors.

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 five banks paying the highest dividend yields, that also have average daily trading volume of at least 20,000 shares. These banks are all paying rather high percentages of earnings out to investors in the form of dividends. The largest U.S. banks are unable to do this, because the Federal Reserve prefers, at least for now, to hold dividend payouts to roughly 30% of earnings.

Many of the largest U.S. banks have instead focused on share buybacks. For example, JPMorgan Chase ( JPM) in March received Federal Reserve approval for buybacks totaling up to $6 billion through March 2014. The company's quarterly dividend was raised during the second quarter to 38 cents a share from 30 cents, and the dividends will come to roughly $6 billion this year. Based on the 28-cent quarterly dividend and the consensus 2013 earnings estimate of $5.83 among analysts polled by Thomson Reuters, JPM's dividend payout ratio is about 26%.

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.

But the ratings don't factor in dividend payout ratios. All five of the banks listed below have high dividend payout ratios. However, all had decent operating returns on average assets of at least 0.78% for the 12-month period ended June 30, and have solid long-term track records for profitability.

KBW analyst Collyn Gilbert in a report discussing industry earnings prospects for 2014 and 2015 on Sept. 24 took a positive tone when discussing community banks with high dividend yields. "As the banking industry has significantly rebuilt its capital position, and could be at a cyclical low point in earnings, we think future dividend cuts are an unlikely risk facing the sector," she wrote.

Some investors and analysts will continue to question the ability of some of these banks to maintain high dividend payouts, but regulators are focusing their scrutiny on banks with total assets of above $50 billion and only one of these names is close to that important threshold. It is also important to note that price-to-forward-earnings multiples have climbed considerably this year, as bank stocks have risen, and that this has also sent dividend yields lower.

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

5. Trustco Bank

Shares of Trustco Bank ( TRST) of Glenville, N.Y., closed at $6.09 Tuesday, up 19% this year, following a 1% decline during 2012. The shares trade for 1.6 times tangible book value, according to Thomson Reuters Bank Insight, and for 13.8 times the consensus 2014 EPS estimate of 44 cents, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is 40 cents.

Based on a quarterly payout of 6.5625 cents, the shares have a dividend yield of 4.31%.

Trustco Bank is rated a B (Good) by TheStreet Ratings.

Trustco's return on average assets (ROA) for the 12-month period through June 30 was 0.88% and its return on tangible common equity (ROTCE) was 10.81%. To put that performance into perspective, the return on assets for the first half of 2013 for all U.S. banks was 1.15%, improving from 0.99% a year earlier, according to the Federal Deposit Insurance Corp. The aggregate return on equity for all U.S. banks during the first half of 2013 was 10.22%, improving from 8.84% during the first half of 2012.

For the 12-month period ending June 30, Trustco's dividend payout ratio was 64.16%, which was the lowest percentage of earnings paid out through dividends for the five banks listed here.

The company had $4.4 billion in total assets as of June 30 and reported second-quarter net income of $9.8 million, or 10.4 cents a share, increasing from $9.2 million, or 9.7 cents a share, in the first quarter, and $9.1 million, or 9.7 cents a share, in the second quarter of 2012.

The sequential earnings improvement reflected securities gains, while the year-over-year improvement reflected a decline in the provision for loan losses to $2 million from $3 million.

KBW analyst Collyn Gilbert rates Trustco "market perform," with a target price of $6, and in a note in July following the company's second-quarter earnings announcement, wrote that she saw "little upside" to the shares, but increased her estimate of the takeout value of the bank to $7.20 a share from $6.00. "

" We view a takeover as relatively unlikely given what we perceive to be a lack of demand for TrustCo's mono-line 30-year fixed residential balance sheet," she added.

TRST Chart TRST data by YCharts

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

4. Peoples United Financial

Shares of Peoples United Financial ( PBCT) of Bridgeport, Conn., closed at $14.54 Tuesday, returning 25% this year, following a 1% decline during 2012. The shares trade for 1.8 times tangible book value and for 16.2 times the consensus 2014 EPS estimate of 90 cents a share. The consensus 2013 EPS estimate is 78 cents.

Based on a quarterly payout of 16.25 cents, the shares have a dividend yield of 4.47%.

Peoples United is rated an A-minus (Excellent) by TheStreet Ratings.

The company had $31.3 billion in total assets as of June 30 and reported second-quarter net income of $62.1 million, or 20 cents a share, compared to $52.5 million, or 16 cents a share, during the first quarter, and $64.6 million, or 19 cents a share, during the second quarter of 2014. Despite the year-over-year earnings decline, earnings-per-share increased by a penny because the company's common-share count declined to 309.6 million as of June 30 from 340.3 million a year earlier.

People's United lowered the share count by repurchasing shares. The company bought back 22.4 million shares during the first half of 2013, at an average price per share of $13.30.

The company's ROA for the 12-month period ending June 30 was 0.78% and its ROTCE was 8.35%. Those are the lowest for both measures among the banks listed here; however, the low ROTCE also reflects a strong capital base. People's United's tangible common equity ratio was 8.69% as of June 30 -- the highest among the five banks listed here.

The bank's dividend payout ratio for the 12-month period ended June 30 was 88.89%.

In his firm's third-quarter earnings preview for small and mid-cap banks, JPMorgan analyst Steven Alexopoulos on Wednesday reiterated his "overweight" rating for People's United, with a price target of $16.50. Investors are looking at "a good entry point into a high yielding stock," Alexopoulos wrote.

The analyst expects improved efficiency for the company during 2014, and wrote that second-quatter loan growth was "robust at 12% anualized."

" The differentiating factor at PBCT in our view is the ability of the company to grow loans tied to new markets and new hires taking share. Case in point, of $906 million in originated loan growth last quarter, $515 million was tied to NY commercial real estate," Alexopoulos wrote. He estimates People's United will post EPS of 80 cents this year, improving significantly to 96 cents in 2014.

PBCT Chart PBCT data by YCharts

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

3. Park National Corp.

Shares of Park National ( PRK) of Newark, Ohio, closed at $79.99 Tuesday, returning 29% this year, following a 5% return during 2012. The shares trade for 2.2 times tangible book value and for 15.6 times the consensus 2014 EPS estimate of $5.14. The consensus 2013 EPS estimate is $5.01.

Based on a quarterly payout of 94 cents, the shares have a dividend yield of 4.70%.

Park National is rated a B-plus (Good) by TheStreet Ratings.

The company had $6.6 billion in total assets as of June 30 and reported second-quarter net income of $20.0 million, or $1.30 a share, compared to $20.7 million, or $1.34 a share, the previous quarter, and $18.9 million, or $1.10 a share, a year earlier. The ROA for the 12-month period ended June 30 was 1.03%, while the ROTCE was 11.88%. during the same period, the dividend payout ratio was 83.93%.

The sequential decline in earnings during the second quarter reflected an increase in the provision for loan losses to 673,000 from 329,000, as well as an increase in other expenses. The significant year-over-year improvement reflected the big drop in the provision for loan losses from $5.2 million in the second quarter of 2012.

KBW has included Park National "potential buyers list" among regional and community banks. Following a presentation by the bank at his firm's community bank conference in New York in August, KBW analyst John Barber in a note to clients wrote that after several years of working down its portfolio of nonperforming loans, "we believe the company's focus has returned to growing the core franchise again."

"Growth via deals remains a key consideration for the shares going forward, in our view, due to the slower growth nature of some of PRK's core markets, in Ohio, Barber wrote, adding that "From a strategic perspective, we expect the company to pursue bank deals in existing or contiguous markets and do not expect the company to announce anything substantially outside of its Midwest footprint."

Barber rates Park National "market perform," with a $73 price target, estimating the company will earn $5.14 a share this year, with EPS increasing to $5.20 in 2014.

PRK Chart PRK data by YCharts

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

2. Valley National Bancorp

Shares of Valley National Bancorp ( VLY) of Wayne, N.J., closed at $10.07 Tuesday, returning 14% year-to-date, following a decline of 16% during 2012. The shares trade for 1.9 times tangible book value and for 16.2 times the consensus 2014 EPS estimate of 62 cents. The consensus 2013 EPS estimate is 62 cents.

Based on a quarterly payout of 16.25 cents, the shares have a dividend yield of 6.45%.

Valley National is rated a B-minus (Good) by TheStreet Ratings.

The company had $16.0 billion in total assets as of June 30 and reported second-quarter net income of $33.9 million, or 17 cents a share, increasing from $31.3 million, or 16 cents a share in the second quarter, and $32.8 million, or 17 cents a share, in the second quarter of 2012.

For the 12-month period ended June 20, Valley's ROA was 0.89% and its ROTCE was 13.28%. Meanwhile, the company's dividend payout ratio was 88.89%.

JPMorgan analyst Steven Alexopoulos in his third-quarter earnings preview for small and mid-cap banks on Wednesday included Valley among his list of "four names to avoid."

The analyst called Valley "one of the more conservative and best-run banks in the country" and noted the company was "one of the few banks that were able to escape cutting its dividend during the 2008-2009 financial crisis due to prudent underwriting."

The problem with the stock, according to Alexopoulos is that Valley "is unlikely to escape the current net interest margin storm."

"We no longer see a clear path toward VLY earning its dividend, particularly given our view that the mortgage banking boom has peaked and is now positioned to reverse course," Alexopoulos wrote, adding that "even if the dividend is not cut, with the payout ratio likely to remain elevated in the intermediate term, we believe the risk of a cut will be an overhang on the stock."

VLY Chart VLY data by YCharts

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

1. New York Community Bancorp

Shares of New York Community Bancorp ( NYCB) of Westbury closed at $15.48 Tuesday, returning 25% this year, following a 14% return during 2012. The shares trade for 2.1 times tangible book value and for 15.0 times the consensus 2014 EPS estimate of $1.03. The consensus 2013 EPS estimate is $1.05.

Based on a quarterly payout of 25 cents, the shares have a dividend yield of 6.46%.

New York Community Bancorp is rated a B (Good) by TheStreet Ratings.

The company had $44.2 billion in total assets as of June 30 and reported second-quarter net income of $122.5 million, or 28 cents a share, compared to $118.7 million, or 27 cents a share, the previous quarter, and $131.2 million, or 30 cents a share, a year earlier. For the 12-month period ended June 30, New York Community's ROA was 1.13% and its ROTCE was 15.47%, making the company the strongest earning among the five banks listed here.

For the 12-month period through June, New York Community's dividend payout ratio was 89.29%.

New York Community has maintained the 25-cent dividend for 38 consecutive quarters, and has achieved strong and steady earnings, with stellar asset quality, through its focus on making loans secured by apartment buildings in the New York City area with below-market rents.

But some analysts have questioned the viability of the dividend for years, and if the bank follows through with CEO Joe Ficalora's plan to make an acquisition that would take it above the $50 billion asset threshold, there will be greater scrutiny of the dividend.

Citigroup analyst Josh Levin rates New York Community Bancorp a "sell" and in a note in August wrote that "we view NYCB as (a) an expensive stock with weak organic earnings growth prospects (b) a stock for which the risk of a dividend cut in the next 12 months is fundamentally mispriced and (c) a bank with a poor funding base that will likely prove highly problematic when short rates rise."

KBW analyst Collyn Gilbert has a differing view, rating New York Community "outperform," with a price target of $17.00. Following a conference presentation by Ficalora, in which the CEO said the bank was considering acquisitions in all geographical areas to improve its funding base, Gilbert wrote in a note that "Although we are leaving our estimates unchanged, we think there is upside to our 2013 EPS estimate of $1.05 and our 2014 EPS estimate of $1.09."

Gilbert added that "a large acquisition could be accretive to TBV and EPS, which has historically driven shareholder value appreciation."

NYCB Chart NYCB data by YCharts

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

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

>Contact by Email.

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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