Regular dividend paying stocks usually attract more investors as these are a steady source of income. Amid the current low interest rate environment, cash dividends return more than what can be earned from deposits in savings accounts.
So, while selecting dividend stocks, investors generally focus on dividend yield (annual dividend per share/stock’s price per share) as this reflects the percentage return on the invested amount. Higher the yield, higher the chances of selecting that stock.
Notably, as dividend yield is based on the stock’s price, lower share price indicates higher yield, making the stock attractive. However, before buying such a stock, one must ensure that it is not a dividend trap. Decline in the company’s stock price could be on account of some fundamental weakness. If the concerns persist, there is a high chance of further dip in price, and one must steer clear of such stocks.
Why Bank Stocks?
For most of the last year, bank stocks were out of favor. Low rates, tough operating backdrop due to the coronavirus-induced economic slowdown and faltering loan demand were some of the major reasons for bearish investor sentiments.
In 2020, SPDR S&P Regional Banking ETF and KBW Nasdaq Bank Index were down 8% and 14.6%, respectively. Likewise, the Zacks Major Regional Banks industry and Zacks Banks & Thrifts industry lost 17.2% and 10.5%, respectively. Nevertheless, the S&P 500 Index rallied 18.6% over the same time frame.
Price Performance in 2020
The trend has been reversing of late. Optimism about the banking industry is primarily driven by the expectation of an accelerated recovery of the sector. The bullish sentiments can be attributed to steepening of the yield curve, extensive vaccination drive, stimulus packages and favorable economic data.
All these factors indicate that the U.S. economy is on the path for robust recovery. As banks’ financials are directly linked to the health of economy, bank stocks are gradually gaining favor among investors.
Though chances of increase in interest rates are less in the near term, steepening of the yield curve and gradual rise in demand for loans will support banks’ net interest income and margins in the quarters ahead. Banks are undertaking measures to improve operating efficiency by digitizing operations and also, through strategic acquisitions.
Further, last year, several banks had curtailed/maintained dividend levels and suspended share repurchases to preserve liquidity. However, with economy recovering at a solid pace, banks have again started raising quarterly dividends and resumed buybacks.
5 Bank Stocks With Solid Dividend Yield
One must not miss out these favorable developments in the banking industry by sitting on the side-lines now. With the help of Zacks Stock Screener we have shortlisted five bank stocks that have a five-year average dividend yield of 3.5% or more. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Also, these banks have the market capitalization of $1.5 billion or more and an earnings growth projection of more than 10% for 2021. Further, these five banks have witnessed price appreciation of 15% or more so far this year.
Year-to-Date Price Performance
Here are the five banks:
First Hawaiian (NASDAQ:FHB), Inc. FHB, based in Honolulu, HI, has a market cap of $3.8 billion. It offers a wide range of banking services to consumer and commercial customers. The company carries a Zacks Rank #2 at present. Further, the stock has an average dividend yield of 3.69% and an earnings growth projection of 20.3% for 2021. The company’s shares have rallied 24.2% so far this year.
Headquartered in Los Angeles, CA, Hope Bancorp, Inc. HOPE has a market cap of $1.8 million. It provides banking services to small and medium-sized businesses, and individuals. The average dividend yield for the Zacks Rank #1 stock is 3.74%. Its earnings are projected to grow 44.7% this year. In the year-to-date period, shares of the bank have jumped 36.8%.
With a market cap of $4.6 billion and a Zacks Rank #1, PacWest Bancorp PACW provides commercial banking products and services. The Beverly Hills, CA-based firm’s average dividend yield is 5.37%. The company’s shares have surged 51% so far this year and its current-year earnings are projected to jump 70.4%.
Headquartered in Jersey City, NJ, Provident Financial Services (NYSE:PFS), Inc. PFS has a market cap of $1.9 billion. It offers various banking services to individuals, families and businesses. The average dividend yield for this Zacks Rank #2 stock is 3.87%. Its earnings are projected to grow 11.6% in 2021. The company’s shares have gained 27.5% so far this year.
Umpqua Holdings (NASDAQ:UMPQ) Corporation UMPQ, based in Portland, OR, has a market cap of $4 billion. It provides commercial and retail banking, and retail brokerage services. The company presently carries a Zacks Rank of 2. In the year-to-date period, shares of the bank have risen 18.6%. Further, the stock has an average dividend yield of 4.65% and an earnings growth projection of 299% for the current year.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
PacWest Bancorp (PACW): Free Stock Analysis Report
Provident Financial Services, Inc (PFS): Free Stock Analysis Report
Umpqua Holdings Corporation (UMPQ): Free Stock Analysis Report
Hope Bancorp, Inc. (HOPE): Free Stock Analysis Report
First Hawaiian, Inc. (FHB): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research