One key reason investors like finance sector stocks is that many pay out dividends. And they can be generous: According to dividend.com, financial stocks boast some of the highest yields as a sector, at an average rate exceeding 4%. That's nearly double the current average of the S&P 500 index.
The data shows that more than 1,200 financials hand out a distribution -- far more than any other tracked sector. Here are three companies that are worth special consideration for their pure yield, sustainability, and underlying fundamentals.
Realty Income (O +0.53%)
Realty Income bills itself as "The Monthly Dividend Company," and it's not kidding: The company has indeed paid a distribution every single month throughout its 45-year operating history (and increased that dividend 77 times since it went public in 1994). It's an equity real estate investment trust, meaning it invests directly in real estate (as opposed to mortgage REITs, which plow their money into mortgage-backed securities).
Nearly 80% of the company's portfolio is in retail properties, and solid ones at that. Its occupancy rate topped 98% at the end of September, which is a highly impressive figure, given that the REIT managed close to 4,300 properties. Funds from operations, a key metric for REITs, saw a rich 23% increase on a year-over-year basis in the third quarter.
This REIT has built business on a foundation of choice property, and it's managing its assets well. Consequently, it should keep growing both its profitability and that regular dividend -- which, by the way, has increased by nearly 30% since late 2009.
Realty Income's approximately $0.18 per-share payout yields 4.7% at the moment. That's far from the highest in the REIT world, but it's worth it, given the company's excellent fundamentals and constant flow of growing dividends.
That dividend will be dispensed on Dec. 15 to shareholders of record as of Dec. 1.
Main Street Capital (MAIN +1.39%)
Broadly speaking, this is the Realty Income of business development companies (entities that make their coin by helping to finance early-stage to midstage enterprises, often taking equity stakes in their investments). Like REITs, BDCs are required to pay out nearly all of their profit in the form of dividends.
Like Realty Income, Main Street Capital hands out a distribution every month, rather than every quarter. The yield on the distribution isn't that high compared to its peers (it stands at 6.3% in a segment where 10% or more isn't unusual).
But there are good reasons why Main Street Capital should trade at a premium. The company has grown its book value by over 1,700% since it went public in 2007. Its portfolio is well diversified, with a broad range of business sectors represented. And, of paramount importance to such a lender, its funding sources are relatively inexpensive: Earlier this year, Main Street Capital was paying only about 3.5% for its borrowings. This compares favorably to rivals, which often pay upward of 5% for their money.
At the moment, Main Street Capital's distribution totals $0.17 per share, to be paid on Jan. 15 to holders of record as of Dec. 31.
New York Community Bancorp (NYCB +0.82%)
Banks typically have much lower dividend yields than their REIT or BDC cousins. But this company is far from typical.
Regional specialist lender New York Community Bancorp boasts a nice 6.3% yield on its quarterly payout -- far more than major nationwide banks and even some of the more successful megaregionals, such as PNC Financial Services or US Bancorp.
New York Community Bancorp can keep its dividend high because much of its portfolio consists of a narrow class of assets, namely mortgages for residential properties in New York City. Not only is that municipality a highly in-demand market, but it's also stuffed with rent-controlled properties. This produces a strong and predictable revenue stream.
As a result, the bank's dividend is one of the steadier and more reliable payouts in the financial sector. It has handed out $0.25 per share for over 10 years running -- and that's through the Great Recession and banking crisis, when many peers were taking billions in government bailouts to survive.
New York Community Bancorp's most recent distribution was paid on Nov. 20. It has not yet announced the next payout.
