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Looking for a Dividend Stock? Check Out This Elite Bank

By Taylor Carmichael and Jason Hall – Nov 1, 2021 at 12:00PM

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The Bank of N.T. Butterfield & Son is 163 years old, and it's still going strong.

While a lot of investors are interested in cryptocurrency and fintech stocks, on this episode of "The 5," recorded on Oct. 11, Jason Hall does a deep dive into an old-school bank for the global elite, The Bank of N.T. Butterfield & Son (NTB 1.80%). Jason's bullish on this bank stock, and he especially loves its high dividend payout of almost 5%.

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Jason Hall: You guys were talking about two really interesting and innovative things. Danny talking about the underbanked and how MercadoLibre has basically created something to help millions and millions of people interact in the digital economy. Taylor's talking about Facebook's initiatives to do something very similar as being a massive opportunity for Silvergate Capital. I'm going to talk about the very other end of the spectrum and that's a bank that is for the global elite and the global wealthy, and that's the Bank of NT Butterfield & Son.

Ticker is N as in Nancy, T as in Thomas, B as in Butterfield, NT Butterfield. This is a really interesting bank, so it's based in mainly offshore banks, so you think about Cayman Islands, think about the Channel Islands, off the coast of Europe. These are banking centers for wealthy internationals. People that travel internationally a lot, very high net wealth individuals. Also for businesses, business banking is large in these areas. NT Butterfield & Son has been there for a century plus, 115, 120 years. It only went public about five or so years ago, four or five years ago. It's a really interesting bank for a couple of reasons.

No. 1, banking services for the global high net wealth cohort is only going to grow. The world is getting more wealthy. The same dynamics that are pulling a billion people into the global middle class, out of poverty into the global middle class over the next decade, are the same dynamics that are going to create a larger cohorts of ultra-wealthy individuals. NT Butterfield & Son is a great bank for that big trend. I want to talk a little bit about some of the economics of its business I think that are important.

If you look at banking, there are two metrics that are the benchmark. There's return on equity and return on assets and the benchmarks for those numbers are 1% and 10%. One percent or higher return on assets is the benchmark, 10% or higher return on equity is the benchmark. You see in its history as a public company, Butterfield & Son has been able to consistently get a very high return on equity and also return on assets. Those numbers have dipped a little bit over the past couple of years. The reason that's happened is because the company has made some investments that have raised its costs. It's still in the process of absorbing those costs to normalize that, to start generating meaningful improvements in returns. But where those investments it has made is acquisitions of some other banking assets that are a little more high-touch, a little more services based.

They're not so much about getting interest yield, they're more about services, fees-based revenues. Those are things that are strengthening the bank in terms of diversifying its cash flows. I really like the moves that they've made. I think in the long term, we're going to see the returns that it gets from those continue to lever higher. There's one more thing that I want to show here in the financials that I think is really important about NT Butterfield & Son. You look at the dividend, pay is a $0.44-per-quarter dividend and it's quarterly earnings per share are consistently close to double that dividend. That is a substantial margin of safety and continuing to support its dividend and even grow it overtime. You see the dividend has been held pretty steady primarily because of what happened in early 2020 with the coronavirus crisis, the company's made the decision to hold steady at that dividend instead of raising it. Even though it does have plenty of margin of safety to be able to raise it, it's held steady on that dividend, so it'll continuing to focus on investing in the business.

What do I particularly liked about this is an investment right now, the stock is still well down from its pre-coronavirus crisis high, which was really back in 2018. You can lock in a dividend yield of almost 4.8% on the current price. That substantially lowers the threshold for stock price appreciation over the long term to make this a market-beating investment. If you're looking for income, I think this is a wonderful stock to hold with a very high yield. As you see, it's pretty protected with earnings that are nearly double the dividend payout. I think its opportunity to grow and grow its earnings over time as it continues to push its returns on equity and assets back higher, make it really compelling. Again, that's NT Butterfield & Son's, ticker NTB.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Taylor Carmichael owns shares of Silvergate Capital Corporation. The Motley Fool owns shares of and recommends Bank of N.T. Butterfield & Son, MercadoLibre, and Meta Platforms, Inc. The Motley Fool has a disclosure policy.

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