Bank Stocks: Dividends Staging a Comeback
Bank stocks have been a losing proposition so far in 2011, but there is a thin silver lining to be found in the sector. Firms are making progress digging out of the rubble of the financial meltdown, at least when it comes to paying dividends.
Between the financial system's near collapse and the federal government's TARP bailout, lots of banks were forced to curtail or stop making payouts. In total, nearly 300 banks cut, omitted or discontinued their dividends since 2008, according to analysts at investment bank Keefe, Bruyette & Woods (KBW).
Adding to that pain more recently is that bank stocks, as measured by the KBW Bank index, are off nearly 6 percent year-to-date, lagging the S&P 500 by an ugly 13 percentage points.
So it's certainly of some solace that three years on the banking industry is gradually returning to raising rather than cutting payouts. Of all the banks listed on either the NYSE or Nasdaq, 30 firms raised their dividends during the second quarter, according to a new report by KBW analysts, vs. just five that either cut, discontinued or omitted their payouts over the same period.
The ratio for the year-to-date also tips in favor of the return to bank dividends. During the first half of 2011, 63 banks raised their payouts, while 10 firms cut, omitted or suspended them, according to KBW. Six banks -- Access National (ANCX), Columbia Banking (COLB), Citizens & Northern (CZNC), First Pactrust Bancorp (FPTB), Fulton Financial (FULT) and Bank of the Ozarks (OZRK) -- hiked dividends twice this year.
That's a welcome trend, to be sure, but banks being on the dividend-paying mend hardly means everything is hunky dory. Since 2009, only 119 banks have increased their dividends -- roughly just a third of all firms that were forced to cut, omit or discontinue payouts during the depths of the crisis.
This is the sort of news that lends itself to a teachable moment for index investors. Financial advisors caution that making narrow sector bets is pretty much as perilous as picking individual stocks. Diversification, remember, is your friend. If you plowed too much of your portfolio into the SPDR KBW Bank ETF (KBE), which tracks many of these bank stocks, you may have learned that lesson the hard way. Fortunately, at least your dividends are coming back.
Image courtesy of Dollar Savings Bank.
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