1 Great Dividend You Can Buy Right Now

Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn't sustainable. In others, the dividend is so low, it's not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.

Today, and one day each week for the rest of the year, we're going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn't to say that these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. Check out last week's selection.

This week, we'll turn our attention to the Northeast and take a closer look at retail and commercial bank First Niagara Financial Group (NASDAQ: FNFG  ) , and I'll show you why I think it has all the tools necessary to become an income investors' dream stock.

Sacked by the recession
There's really no beating around the bush: The recession absolutely zonked the retail and commercial banking sector. Many banks have since rebounded from their credit quality woes, but the recovery has proved particularly slow in the Northeast, where the housing market remains weak relative to other parts of the country.

M&T Bank (NYSE: MTB  ) , which is nothing short of a giant in the Northeast banking scene, in 2009 saw its adjusted net income plunge 40% and its average return on assets fall despite a rise in net interest margin. Simply put, if M&T Bank was struggling, there was little chance that smaller banks were going to come out of the recession unscathed.

Source: Myfuture.com, Flickr.

The First Niagara advantage
Shareholders have been subjected to a bit of a double-edged sword in First Niagara's rebound from its lows. Banks that had the capital to take advantage of weaker banks looking to raise cash or simply shed non-core assets set themselves up in a big way following the recession.

Capital One Financial (NYSE: COF  ) took this to heart by announcing the purchase of ING Group's ING Direct U.S. operations for $9 billion in 2011. The deal gave ING some much needed capital while ridding it of what appeared to be a non-core U.S. asset while giving Capital One exposure to ING Direct's vast network of ATMs located primarily on the East Coast.

First Niagara's approach was similar, but unfortunately for shareholders it did come with a bit of short-term pain for what should be a lot of long-term gains. First Niagara orchestrated a deal in 2011, as well, to purchase 195 branches located in the Northeast from HSBC (NYSE: HSBC  ) . Under the terms of the deal, U.S. regulators required First Niagara to sell about 20% of the branches so it didn't maintain too much of a monopoly in certain parts of the state of New York, selling most of these branches to KeyCorp (NYSE: KEY  ) for $110 million and helping reduce some of its purchase price. Without the cash for the deal, First Niagara was forced to halve its dividend and turn to a dilutive share offering to raise cash.

I know that might sound like the antithesis of what would make a great dividend stock, but hear me out before you close the book on First Niagara.

In its latest quarter, First Niagara delivered EPS of $0.18, reversing a year-ago loss of $0.05 per share as nearly all facets of its business improved. The bank saw its fee income operations jump 7% and its average commercial loans increase by 10% quarter over quarter for the 14th straight quarter. Most importantly, net charge-offs fell by two basis points to 0.33% from the previous year, pointing to a credit portfolio that's ripe with high quality retail and commercial loans.

Another factor that should be considered here is that U.S. Treasury rates are beginning to rise. Historically low lending rates have crushed banks' ability to charge high yields on the money they lend out. However, as rates rise, the average yield on loans is expected to rise, which will result in bigger net profits for banks like First Niagara.

Show me the money, First Niagara
The really compelling aspect of First Niagara, other than impressive credit quality relative to many of its peers, is that it consistently pays out a premium dividend.


Source: Nasdaq.com.
*Assumes quarterly payout of $0.08 for remainder of 2013.

Even with the 50% cut to its payout in 2012 to conserve cash for the HSBC branch deal, First Niagara Financial will have paid out $4.65 per share in cumulative dividends between 2004 and 2013. Based on its closing price on Friday, this translates to a dividend payback of 44% over the trailing decade! That's phenomenal and speaks to a company devoted to rewarding shareholders.

Furthermore, based on this year's projected EPS, First Niagara is paying out just 43% of its earnings in the form of a dividend. Being historically low for First Niagara, it only seems logical to expect that a dividend increase of perhaps a penny or two per share could be on the way for fiscal 2014.

Foolish roundup
Sometimes you have to dig beneath the surface in the financial sector to find the diamonds in the rough. First Niagara certainly didn't please shareholders with its financing efforts to make the HSBC deal happen, but now they're beginning to reap the rewards of having additional branches throughout New England. Now that it's trading at just 81% of book value and 13 times forward earnings with a slew of improving balance sheet metrics, I can't help feeling incredibly optimistic about First Niagara's future. Tack on a 3% yield that's returned hefty amounts of dividend income to investors over the past decade, and you have all the reasons you need to count First Niagara as an income investor's dream stock.

As First Niagara has clearly shown, dividend stocks can make you rich -- it's as simple as that. While they don't garner the notability of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


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