Bank stocks can be a good source of dividends for investors who appreciate passive income. While there are plenty of big banks that offer solid dividend yields, investors willing to dive deeper into the sometimes-overlooked banking sector will find there are some small bank stocks with even stronger dividend yields.
These stocks may also be able to offer value from an investing standpoint as they are growing entities and have the potential for stock price growth as well.
Here are three small bank stocks with big dividend yields that savvy investors might want to take a closer look at.
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1. Northwest Bancshares
Northwest Bancshares (NWBI +0.31%), based in Warren, Pennsylvania, has $14.4 billion in total assets and has been publicly traded since 1994. It currently pays out a common quarterly dividend of $0.20 per share, which equates to an annual $0.80 per-share dividend. With shares trading around $13.50, that gives Northwest Bancshares a dividend yield of roughly 5.9%. The stock trades at roughly 148% of tangible book value (TBV) (equity minus goodwill and intangible assets).
On the plus side, with much of the banking sector trading at fairly strong valuations, this isn't a bad valuation and could offer upside. In the years leading up to the pandemic, Northwest Bancshares has had a strong return on average assets, but it could improve its return on average equity. Potential investors though should be aware that the bank could also improve its efficiency ratio, a metric showing a bank's expenses expressed as a percentage of total revenue, and continue to bring down deposit costs.
2. Bank of N.T. Butterfield & Son
Bank of N.T. Butterfield & Son (NTB +0.91%), otherwise known as Butterfield Bank, is based in Bermuda, has about $14.8 billion in total assets, and has only been publicly traded since September 2016. It pays a quarterly cash dividend of $0.44 per share, which equates to an annual per-share dividend of $1.76. With shares of Butterfield currently trading around $35.80, the bank has a dividend yield of 4.9%. The stock currently trades at a high valuation of roughly 203% of tangible book value.
When it comes to the important metrics for bank stocks, Butterfield has been posting strong results. In the past five quarters, it has not generated below a 15.5% return on average tangible common equity. Last quarter, it generated a 19.3% return on average tangible common equity, which is superb. Butterfield also regularly generates over a 1% return on average assets -- also very good.
The valuation is high at this point, but the bank is returning a lot of capital to shareholders and consistently posting strong returns.
3. Heritage Commerce
The $5 billion Heritage Commerce (HTBK +0.79%), based in San Jose, California, has roughly $5 billion in total assets and has been publicly traded since 1998. Its stock pays a quarterly common dividend of $0.13 per share for an annualized per-share dividend of $0.52. With shares trading around $11.24, this gives the bank a dividend yield of 4.63%.
Heritage Commerce currently trades at around 161% of tangible book value. This bank looks very solid with a sub-60% efficiency ratio for the past five years, meaning it regularly uses less than 60 cents to generate each $1 of profit. Profitability is solid for a bank of this size, as is the deposit base, with non-interest-bearing deposits making up more than 40% of total deposits. One thing to keep in mind is that Heritage doesn't appear to have repurchased any stock in at least a decade, according to YCharts, which may turn some investors away.
