Please ensure Javascript is enabled for purposes of website accessibility

1 Stock With a Giant Dividend to Buy Today

By Patrick Morris - Feb 20, 2014 at 11:49AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

While Wells Fargo and U.S. Bancorp are at the tops of many investors' lists, New York Community Bancorp is another great investment idea.

If you ask any investor what the safest bank out there is, you'll likely hear one of two answers, Wells Fargo (WFC -1.71%) or U.S. Bancorp (USB -0.82%), yet it turns out one bank you may have never heard of is at the top of its class. That bank is New York Community Bancorp (NYCB -1.38%).

Source: Dhaval Jani on Flickr.

At the end of 2013, New York Community Bancorp was the 41st largest financial institution in the United States, with just under $50 billion in assets. Although that certainly is big -- after all, Visa has $36 billion in assets -- New York Community Bancorp is only 13% of the size of U.S. Bancorp, and just 3% of the size of Wells Fargo. Yet despite its smaller size, there are three compelling reasons an investor should consider an investment in this regional bank and its 6.3% dividend.

1. Remarkable profitability
New York Community Bancorp is an interesting company because it predominantly operates in the multi-family lending arena -- apartments and the like -- in New York City. It has a total of 243 branches in New York, New Jersey, Ohio, Florida, and Arizona, but all 30 of its commercial bank branches reside in the metro New York area.

It leads its peers in its efficiency ratio -- which essentially measures the cost of each dollar of revenue -- and it also delivers solid returns:

Source: Company Investor Relations.

The company has had three acquisitions since 2009, and has added more than $11 billion in assets and almost that much in deposits. As a result, it has a sizable portion of goodwill on its balance sheet. Excluding for that, its adjusted return on average tangible stockholders' equity stands much higher, at 16.3%. When you consider its strong results, its relatively reasonable valuation, and high dividend, there is certainly a lot to like at first glance with New York Community Bancorp. 

2. Astounding safety
Beyond first glance, there is also the reality, as a result of the staggering losses that characterized banks in the most recent financial crisis, many investors have begun to question whether they should ever invest in a bank.

Yet through both the most recent financial crisis and the previous savings & loan crisis in the late 1980s and early 1990s, New York Community Bancorp has been resoundingly resilient:

Source: Company Investor Relations.

In fact, in the five-year period from 1989 to 1993, its total charge-offs stood at just 0.17%, versus an industry average of 5.4%, and the results were equally as impressive in the most recent financial crisis, with its charge-offs being 0.9% versus 11% seen by the industry. It has been one of the top banks at protecting itself from chasing risky returns in the name of short-term profits.

3. Incredible returns
Yet what is more remarkable than its ability to insulate itself against losses through its disciplined underwriting and prudent management is its ability to generate returns to shareholders. Through the appreciation of its stock and dividend payouts, the company has had a truly staggering total return on investment of 4,265% over the 20 years from its IPO in November of 1993 to the end of 2013. That compares to a 490% return on the S&P 500 and a 400% for the SNL Bank and Thrift Index. 

While past performance is no guarantee of future success, the results displayed by New York Community Bancorp over 20 years demonstrate its keen ability to protect both itself and shareholders from disastrous consequences of risky lending, which have generated astounding returns, and the signs point to this continuing for years to come.

Patrick Morris owns shares of U.S. Bancorp. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

New York Community Bancorp, Inc. Stock Quote
New York Community Bancorp, Inc.
$10.74 (-1.38%) $0.15
Wells Fargo & Company Stock Quote
Wells Fargo & Company
$45.35 (-1.71%) $0.79
U.S. Bancorp Stock Quote
U.S. Bancorp
$48.61 (-0.82%) $0.40

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.