The market has not been a friendly place this year. In the first six months of 2022, investors saw the worst market performance in five decades as fears of high inflation, aggressive interest rate hikes and a severe recession led to pressure from strong sale. But it’s also this type of environment that can remind us how great high-yielding dividend stocks can be, as they can generate reliable passive income in the worst of times.
The banking sector is well known for having many companies that can pay high yielding annual dividends. In this article, I define a high yielding stock as one that exceeds the market average by 4.13%. Here are three high-yielding bank stocks that should help you earn passive income for years to come.
1. The bank of NT Butterfield & Son
Based in Bermuda and the Cayman Islands, Bank of NT Butterfield & Son (NTB 0.75%) is one of those stocks that tends to go unnoticed unless you’re interested in dividends or a dedicated banking investor who knows the industry well.
Going public in 2016, the bank has around 30% of the deposit market in Bermuda and the Cayman Islands. NT Butterfield also benefits hugely from rising interest rates, as more than 65% of its assets are made up of cash and securities, so the bank can simply invest them at higher yields when rates rise. The bank has been able to consistently generate a return on equity of over 16% since 2017 and is therefore trading at a higher valuation.
NT Butterfield tends to have a higher payout ratio than most in the industry, targeting 50%, but with an annual return of over 5% and strong earnings, it’s really hard to complain here.
2. New York Community Bancorp
The multi-family lender New York Community Bank (NYCB 1.39%) hasn’t been the biggest stock to own recently, down nearly 10% in the last five years. The bank’s outdated savings model, which relies on high-cost financing and fixed-rate multi-family loans, made the most of it.
However, at the very beginning of 2021, the bank elevated Thomas Cangemi as CEO, and he pledged to adopt a more traditional commercial banking model. Cangemi has begun to make progress, including New York Community Bancorp’s planned acquisition of Flagstar Bancorp, which will make significant progress in its transition. The deal is still pending but is expected to be completed within a few months.
Either way, New York Community Bancorp is everything you want in a good dividend stock. It has paid a dividend every year since 1994, although there have been a few dividend cuts over its long history. Currently, the bank pays a quarterly dividend per share of $0.17, which equates to an annual yield of 6.3%. The other thing I like about New York Community Bancorp is that it has impeccable credit quality, one of the things that can get a bank in trouble. The bank has not had a loan 30 days past due in nine years.
3. Canadian Imperial Bank of Commerce
Canadian Imperial Bank of Commerce (CM 2.05%) is a major Toronto-based bank with nearly $700 billion in assets. The bank operates a large retail and business banking division as well as a large commercial banking and wealth management division.
Since the Great Recession, the bank has performed well, consistently generating returns on equity in excess of 16%. The bank will also benefit from the rise in rates.
Canadian Imperial Bank has a really solid history of dividends, having now paid one for 154 years. Management is targeting a payout ratio between 40% and 50%, and the annual dividend yield is currently around 4.75%.
Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Bank of NT Butterfield & Son. The Motley Fool has a disclosure policy.