It's every investor's dream to earn money by doing nothing. You can make that happen through passive income, and one of the best ways to generate it is by investing in dividend-paying stocks.
Dividend-paying companies tend to be high quality with solid balance sheets, allowing them to pay dividends regardless of the market cycle. One industry with some of the safest dividend-paying companies is the banking industry. Here are three dividend-paying bank stocks you can trust.
1. U.S. Bancorp
U.S. Bancorp (USB +2.50%) is the parent company of U.S. Bank and is the fifth-largest bank in the U.S. based on asset size. Investors may be familiar with this bank thanks to Warren Buffett, whose Berkshire Hathaway owns $6.6 billion in stock -- making it the company's 10th-largest holding.
NYSE: USB
Key Data Points
U.S. Bancorp is laser-focused on providing traditional banking activities like growing deposits and making loans. The bank focuses on producing only high-quality loans, giving it an advantage over its banking peers in the form of an excellent return on equity.
USB Return on Equity data by YCharts
The focus on high-quality loans also makes the bank sensitive to changes in interest rates. The Federal Reserve's aggressive interest rate increases have helped the bank's net interest income grow 6.6% this year. In its recent regulatory filing, the bank said another 50 basis point (0.5%) increase would cause net interest income to increase another 1.17%.
U.S. Bancorp has raised its dividend for 11 consecutive years, and its high-quality loans make its dividend one you trust. It currently yields 3.8%.
2. United Bankshares
United Bankshares (UBSI +2.48%) provides banking services across West Virginia; Virginia; Washington, D.C.; Ohio; Maryland; Pennsylvania; and the Carolinas. United Bankshares has excelled at growing through acquisitions, adding 33 smaller regional banks since 1982.
NASDAQ: UBSI
Key Data Points
The bank's skill in acquiring and incorporating smaller banks has paid off for investors, who have seen its dividend payout increase for 48 consecutive years. Two more years of increases would put the bank in the exclusive Dividends King club if it were a member of the S&P 500. However, since it's not in the index, the bank is an under-the-radar dividend stock that many investors may have never heard of. United Bankshares currently yields a solid dividend of 3.59%.
3. Bank OZK
Bank OZK (OZK +1.97%) provides customers with banking services across 240 offices in Florida, Georgia, Arkansas, North Carolina, Mississippi, Texas, California, and New York.
What makes Bank OZK stand out is its asset quality and low net charge-off ratio, which indicates the bank only holds high-quality loans on its books. Since it went public in 1997, the bank's annual net charge-off ratio was about one-third of the banking industry average.
Image source: Bank OZK.
The bank is also sensitive to changes in interest rates, which have moved higher this year as the Federal Reserve fights inflation. Bank OZK's net interest income has increased by 8.3% through the first six months of the year. According to its recent regulatory filing, a 1% increase in interest rates would cause net interest income to rise 4.6%, while a 2% increase in interest rates would cause net interest income to rise 9.3%.
Bank OZK's focus on high-quality loans has enabled it to increase its dividend payout to shareholders for 48 consecutive quarters, or 12 consecutive years. The bank currently offers a dividend yield of 2.85%.
