Bank dividends for 2013
Look to these financials stocks for yield next year.
The financial services sector, the second-largest sector weight in the S&P 500, has impressed in 2012. One widely-followed gauge of the sector's alpha-generating capabilities, the Financial Services Select Sector SPDR (XLF), has surged 25.6% year-to-date.
Many money-center banks posted strong performances, all the more impressive because of the many controversial and negative headlines. Issues such as the Libor-gate, the London Whale, job cuts and many others had the public relations teams at major banks working overtime.
Even amid escalating fears about the fiscal cliff, XLF has managed to gain almost 7% in the past month. That might have investors wondering if financials can keep the good times rolling next year and, perhaps more importantly, where the sector's compelling dividend opportunities can be found.
Bank of America
Bank of America (BAC) has been the epitome of reversed fortune in 2012. In 2011, it was the Dow's worst-performing stock. This year, the shares have nearly doubled and will easily be the blue-chip index's best performer this year. In the past month alone, Bank of America has rallied 20.6%. Monday's close at $11 is the first time the stock has seen that area since the second quarter of 2011.
Bank of America is not without risks, chief among them is the $25.5 billion in unresolved mortgage claims stemming from the regrettable 2008 acquisition of Countrywide. Still, it should be noted the bank has easily met the capital requirements set forth by Basel III and at least one analyst sees room for significant dividend growth.
With an improved balance sheet, Atlantic Equities analyst Richard Staite sees BofA boosting dividends by enough next year to take the shares to a yield of 1.8% and 2014 dividend increases could bring the yield to a decent 3.4%, according to the TheStreet.com. Even 1.8% is a lot better than the current yield of 0.4%.
With a market cap of almost $4 billion, CorpBanca (BCA) engages in typical banking businesses such as checking and savings accounts as well as commercial and residential loans. At the end of last year, the company had almost 120 branches throughout Chile.
Those are nice statistics, but the real allure with CorpBanca is the dividend -- both the yield and the growth. Shares of CorpBanca currently yield 6.1%. More importantly, the dividend paid by Chiles fourth-largest bank has surged fivefold since 2006.
CorpBanca is also worth a look because of its home in Chile. Sure, Chile can be viewed as "lower beta" than other emerging markets, but the real story as it pertains to CorpBanca is the fact that, because Chile does not have much in the way of public pensions, Chileans are voracious savers (read on Benzinga). In fact, the Chilean government forces public workers to save and that is a good thing for Chilean banks.
Oriental Financial Group
The smallest member of this list by market value, Oriental Financial's (OFG) market cap is just $578 million. That diminutive status does not mean investors should stay away. Actually, among small-cap banks, Oriental Financial offers a solid story that has not gotten much attention to this point.
The company, which primarily does business in Puerto Rico, has been home to far more insider buying than selling in recent months (read on Seeking Alpha), indicating management is bullish on the shares. Why not? Trading just below $13 means the stock goes for just two-thirds of its book value.
The yield is not impressive at 1.9% and that might be by virtue of a dividend cut during the financial crisis. However, Oriental Financial has raised its dividend twice since 2009.
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