3 under-the-radar high-yielding dividend stocks
JMarket volatility has everyone looking for good dividend-paying stocks that can provide passive income, and perhaps a little more stability and less of the turmoil seen so far this year.
The options abound. While many dividend-paying stocks may be companies with little growth, the best-case scenario is to find a stock that has a strong dividend and potential for price appreciation as well. The banking industry is generally a good place to look. Here are three dividend stocks that seem to be flying under the radar.
Like many European banks, the Dutch bank ING Group (NYSE:ING) has seen its share price decline over the past five years, losing almost 15% of its shareholders on their investment. But with inflation on the rise, economists see the European Central Bank potentially leaving negative interest rates behind and cutting its benchmark lending rate to zero this year, which would help banks in the region.
ING generated a return on equity of 9.2% in 2021 and aims to increase this figure to between 10% and 12%.
ING also has plenty of excess capital: more than 10 billion euros ($11.21 billion) above its regulatory requirements. It can use this capital to support loan growth, make an acquisition, or return capital to shareholders through dividends and share buybacks. Buybacks would be particularly beneficial as the bank trades below tangible book value, which is what a bank would be worth if liquidated.
ING’s dividend currently yields around 6%. The bank had to suspend its dividend following the Great Recession, but then reinstated it in early 2015. Since then, the yield has remained fairly stable, apart from when all European banks had to suspend dividends during the pandemic. Overall, I feel pretty good that ING is maintaining this yield. The bank’s policy is to pay out 50% of profits in the form of dividends or share buybacks. As I mentioned above, ING has a ton of excess capital above its regulatory requirements and also plans to increase its returns. In fact, analysts on the bank’s recent earnings call seemed to think a special dividend was in play due to high capital levels.
2. Financial TSF
Financial TSF (NASDAQ: TFSL), with around $14 billion in assets, is an interesting Cleveland-based bank. It operates on an old-school savings model, which means it relies on higher-cost sources of funding, such as rate-sensitive certificates of deposit. In terms of loans, TFS has virtually all of its loans in the form of mortgages and home equity lines of credit. This type of model has fallen out of favor as banks have shifted to focusing on stickier consumer and business deposits and commercial lending.
Each year, TFS pays out the majority of its earnings to shareholders as dividends – around 70% of earnings in fiscal year 2021. Since 2019, the bank has paid out at least 60% of its earnings as dividends. And since completing a partial initial public offering (IPO) in 2007, the company has repurchased nearly half of the outstanding shares held by minority shareholders.
The bank’s dividend currently has a yield of 6.7%. Like many banks, it had to suspend its dividend after the Great Recession, but reinstated it in 2014 and has increased the dividend every year since. The bank even raised it in 2020 and 2021 during the pandemic. These were not big increases but nonetheless symbolic.
3. First interstate banking system
Based in Billings, Montana, First interstate banking system (NASDAQ: FIBK) has nearly $20 billion in assets and is performing quite well. In 2021, it had a return on average assets, which shows how well management uses assets to generate profits, of more than 1%, which is considered very strong in the banking sector. First Interstate also had a return on equity of almost 10%, which is also very respectable.
Last September, First Interstate announced it would acquire Great Western Bancorp, which will bring the bank to approximately $32 billion in assets and expand First Interstate into South Dakota, Omaha, Nebraska and Des Moines, Iowa. The transaction closed on February 1. The size of the deal may have spooked some shareholders surprised by the sudden shift in strategy, but the bank is solidly managed and offers a dividend yield of 4.3%. First Interstate looks like a really solid dividend stock. The company has been paying a dividend since 2010 and has consistently increased it each year.
10 stocks we prefer to ING Groep
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*
They just revealed what they think are the ten best stocks investors can buy right now…and ING Groep wasn’t one of them! That’s right – they think these 10 stocks are even better buys.
View all 10 stocks
* Portfolio Advisor Returns as of January 20, 2022
Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool recommends TFS Financial. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.