The financial crisis has taken a toll on bank dividends, as many have been slashed or even eliminated altogether. But it's not just a coincidence that the most stable banks, such as Wells Fargo (NYSE:WFC), tend to be paying out the strongest dividends. Effective capital management and attention to risk have allowed some banks to emerge far stronger from the crisis than their counterparts. Here are the best bank dividends across three different countries.
While Bank of America and Citigroup still pay dividends yielding less than 1%, Wells Fargo pays a 2.64% yield, making it among the best in large-scale U.S. banking. At $0.30 per quarter, Wells Fargo's dividend is approaching its pre-crisis peak of $0.34 per quarter. Not only does this show the extent of the bank's recovery, but it also shows Wells Fargo's resolve to return capital to shareholders through regular dividends.
Looking forward, Wells Fargo's heavy presence in the mortgage market gives it an opportunity to benefit from the housing recovery. While near-term mortgage results may not look great beside last year's, you should keep in mind 2012 and the early part of 2013 were an exceptional times for refinancing, and future growth can still happen from a rebounding housing market and the origination of new mortgages.
Shareholders of Canadian banks were able to avoid much of the pain felt south of the border and are being rewarded today with dividends that exceed those of all four major U.S. banks. Investors have a lot to choose from in this space, as most major Canadian banks are beating their U.S. counterparts in dividends and long-term share-price performance.
Among my favorites here is Canadian Imperial Bank of Commerce (TSX:CM) (NYSE:CM). The current dividend yield stands at 4.62%, putting it among the highest-yielding banks in North America. On a forward price-to-earnings basis, the bank still looks priced for value, trading at less than 10 times forward earnings and just over 2 times book value.
Today's London is a worldwide financial powerhouse and home turf for Britain's largest banks. But like financial institutions worldwide, many British banks were hit hard by the crisis, resulting in dividend cancellations and government bailouts.
Those looking for dividends from these banks have a limited selection, as both Lloyds Banking Group and Royal Bank of Scotland Group have no dividend and are at least partially owned by the government. HSBC Holdings (NYSE:HSBC), on the other hand, offers a yield of 4.56%. Through HSBC, investors can gain exposure to the United Kingdom, Europe, and HSBC's operations in Asia. As a bonus for dividend investors, the U.K. has no dividend withholding tax, which can run near 30% in some other countries.
Searching out dividends
Following the financial crisis, dividends from financial institutions have been harder to find, but select banks worldwide still offer income-worthy dividends for their investors. In addition, the best dividend-paying banks today are typically the ones that best preserved shareholder value through the crisis. Non-dividend-paying banks do have a place in a portfolio for capital appreciation, but for income investors, Wells Fargo, CIBC, and HSBC are all worth a look.
Alexander MacLennan is long January 2015 $20 calls on Bank of America, long January 2015 $40 calls on Citigroup, and long January 2015 $45 calls on Citigroup. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security.
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