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The best dividend stocks can anchor your portfolio during stormy times in the market. But not every high dividend paying stock is safe or worth owning.
I'm going to show you three that are, and they all come from one of my favorite sectors of the market.
Bank stocks have been out of favor since the market collapsed back in March.
It is one sector of the market that did not recover when the rest of the market began to rally.
The SPDR S&P Regional Banking ETF (NYSEARCA: KRE) is still off a whopping 28% in 2020, as investors have favored flashy technology stocks over boring old banks.
There have been concerns about loan losses from the dramatic decline in GDP in the second quarter. That has not happened as the U.S. Federal Reserve has acted swiftly to ensure the banking system could withstand any shocks.
PPP and other lending programs, along with unemployment extensions, helped people keep their bills paid, so we have not seen the type of defaults that traders feared.
There was a genuine fear that the Fed would not let banks pay out more in dividends than it earned. In fact, some banks have had to cut or even eliminate dividends.
But that has not been a problem for most regional and community banks. These banks are far more profitable than the headline banks, and in addition to dividends, some of them have been given the regulatory green light to start buying back stock again. That's great for shareholders.
What investors did not take into account was the fact that the banking system was better capitalized than ever before when the crisis hit. They had more than enough capital to deal with the problems caused by the pandemic.
It looks as if investors are starting to realize that the regional banks are in much better shape than initially feared.
The regional bank indexes have bounced sharply this month and price crossed back over the 200-day moving average earlier this month.
That is an excellent indication that a new bull market in regional banks is underway.
And it's fantastic news for income investors. Many regional banks are paying out large dividends that are safely covered by earnings, making them the ideal dividend stocks to add now.
Investors can not only see their money grow as prices recover, but they can also lock in high yields that are likely to go up as the banking industry continues to recover...
A Dividend Stock Staple
First Financial Bancorp (NASDAQ: FFBC) is a bank that has been around a very long time.
It was founded in Cincinnati, Ohio, back in 1863. Today, the bank has 142 branches with over $13 billion in total assets.
First Financial reported earnings last week and exceeded analyst estimates. Credit conditions are just not as bad as many analysts feared.
The bank is ready for whatever happens and has set aside an amount that is more than enough to cover potential loan losses.
FFBC has more than enough capital to deal with any future problems. Credit is stabilizing, and the bank is back on a growth trajectory. Deposits are growing, and the mortgage business is booming.
When a coronavirus vaccine is announced, First Financial should see earnings and the stock price recover to pre-pandemic levels, giving shareholders a very nice gain to go along with a generous dividend.
Shares of First Financial are yielding 6.2% and are adequately covered by earnings.
A Dividend Paying Stock to Thrive During a Downturn
Provident Financial Services Inc. (NYSE: PFS) is another bank that has been around a long time.
The company was founded in 1839 in Jersey City, N.J. - so it has been through wars, recessions, depressions, and any other type of disaster, financial or otherwise, that the world could throw at it.
Provident operates in northern and central New Jersey, as well as Bucks, Lehigh, and Northampton counties in Pennsylvania and Queens County in New York.
The bank's loan portfolio is in fantastic shape despite the pandemic.
Less than 1% of Provident's loan portfolio is delinquent right now, and pandemic-related loan deferrals have dropped by two-thirds.
The stock is yielding 7.7% right now, and earnings easily cover the dividend.
The Best Dividend Stock to Buy Now Yields 8%
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.