The market has not been a friendly place this year. Through the first six months of 2022, investors saw the worst market performance in five decades, as fears over high inflation, aggressive interest rate hikes, and a severe recession have led to intense selling pressure. But it's also this kind of environment that can remind us just how great high-yielding dividend stocks can be because they can generate reliable passive income in the worst of times.
The banking sector is well known for having many companies that can pay annual high-yielding dividends. In this article, I am defining a high-yielding dividend stock as one that exceeds the market average of 4.13% . Here are three high-yielding bank stocks that should help you earn passive income for years to come.
1. The Bank of N.T. Butterfield & Son
Based in Bermuda and the Cayman Islands, Bank of N.T. Butterfield & Son (NTB 2.03%) is one of those stocks that tends to fly under the radar unless you're interested in dividends or a dedicated bank investor that knows the industry well.
Having gone public in 2016, the bank has roughly 30% deposit market share in Bermuda and the Cayman Islands. N.T. Butterfield also benefits immensely from rising interest rates because more than 65% of its assets are in cash and securities, so the bank can simply invest these at higher yields when rates rise. The bank has been able to consistently generate a return on equity of more than 16% since 2017 and therefore trades at a premium valuation.
N.T. Butterfield tends to have a higher payout ratio than most of the industry, targeting 50%, but with an annual yield over 5% and strong earnings, it's really hard to complain about much here.
2. New York Community Bancorp
The multifamily lender New York Community Bancorp (NYCB -0.81%) has not been the greatest stock to own recently, down nearly 10% over the past five years. The bank's outdated thrift model, which relies on high-cost funding and fixed-rate multifamily lending, has gotten the best of it.
However, at the very start of 2021, the bank elevated Thomas Cangemi to take over as CEO, and he has vowed to adopt a more traditional commercial banking model. Cangemi has started to make progress, including New York Community Bancorp's planned acquisition of Flagstar Bancorp, which will make meaningful progress on its transition. The deal is still pending but will hopefully close within a few months.
Regardless, New York Community Bancorp is everything you want in a good dividend stock. It's paid a dividend every year since 1994, although there have been some declines in the dividend over its long history. Currently, the bank pays a quarterly per-share dividend of $0.17, which amounts to an annual yield of 6.3%. The other thing I like about New York Community Bancorp is that it has pristine credit quality, one of the things that can get a bank in trouble. The bank hasn't had a 30-day delinquency loan in nine years.
3. Canadian Imperial Bank of Commerce
Canadian Imperial Bank of Commerce (CM 0.87%) is a large bank based in Toronto with nearly $700 billion of assets. The bank runs a large personal and business banking division and a large commercial banking and wealth management division as well.
Since the Great Recession, the bank has performed well, regularly generating returns on equity in excess of 16%. The bank will also benefit from rising rates.
Canadian Imperial Bank has a really solid dividend history, having now paid one for an amazing 154 years. Management targets a payout ratio between 40% and 50%, and the annual dividend yield is currently around 4.75%.