In the past couple of weeks we have seen volatility come back to the stock market. The sharp price movements have shaken up some investors who have gotten used to the slow, steady upward movements we have seen for the past few years. The shock was particularly strong for those who are relying on equity markets to provide desperately needed income from their investments.
If you’re looking for calmer waters that can provide reliable growing streams of dividend income, consider the small regional and community bank stocks. Now that the more severe economic distortions of the real estate and credit crisis are behind us, banks are seeing improvements in their balance sheets and loan portfolios.
Most small banks have rebuilt their capital levels and are now using excess capital to reward shareholders with dividends and buybacks. As the economy continues to slowly recover, smaller bank stocks should be dividend growth leaders. As a bonus they usually aren’t affected by the news-driven distortions that can roil the broad market.
Banc of California (BANC)
Banc of California (BANC) is a perfect dividend stock investors should consider for a growth and income portfolio. The bank is located in Irvine, California and has 80 branches with $4.3 billion in assets. BANC has adequate capital with an equity-to-assets ratio of 9.82, and the loan portfolio is solid, with nonperforming assets at just 1.32% of total assets.
BANC stock currently yields 4.22%, and at 82% of book value the shares are a bargain. As a possible bonus an activist shareholder has a 7.05% stake in the bank and wants management to improve the share price or sell the bank outright. With the average price-to-book-value multiple for bank takeovers at about 1.3% right now, that could mean a stock price of more than $18 per share.
Westfield Financial (WFD)
Westfield Financial (WFD) is a small bank In Westfield Connecticut that has just 12 branches and $1.2 billion in assets. They are in very solid financial shape with an equity-to-assets ratio of more than 10 and nonperforming assets are only 0.25% of total assets. Management has adopted shareholder-friendly policies when it comes to deploying capital, and WFD stock yields 3.38%. WFD stock is currently trading at just 88% of tangible book value, and management announced a 10% share buyback earlier this year.
Oritani Financial (ORIT)
Oritani Financial (ORIT) is one of the highest yielding banks with a payout of 5.1%. Oritani is based in Northern New Jersey and has 25 branches with $3.1 billion in assets. Financially, the bank is a fortress, with nonperforming assets that are just 0.7% of total assets and an equity-to-assets ratio of 14.39. ORIT stock is not super cheap at 1.2 times book value, but it is not overpriced either as it trades below the average takeover multiple so dividend-oriented investors can consider this bank for their portfolio as well.
As of this writing, Tim Melvin was long BANC, WFC.