7 High-Dividend Stocks in Banking

There's money in banking. (Photo:TaxRebate.org.uk, Flickr)

It's smart to seek dividend-paying stocks for your portfolio, as they tend to reward you with cash in all kinds of economic environments, even when the overall market slumps. It can also be smart to include banking stocks in your portfolio, because many are proven long-term money makers. Below are seven high-dividend stocks that might interest you.

Data: Yahoo! Finance

Assessing contendersThe top three banks in the table above will likely draw the most attention for their dividend yields of nearly 6% and more. Don't just grab the highest yields you can, though. Remember that a dividend yield represents the current annual dividend payout by the current stock price. Thus, if a stock's price falls, the yield will grow. (The dividend itself isn't changing here -- just its relation to the stock price.) So many high-dividend stocks have those hefty yields not because they're wonderful investments but because their stock prices have dropped sharply, due to temporary or lasting problems.

Mortgages can be big money-makers for banks. Photo: New York Community Bancorp

You always want to know significantly more about any portfolio contender than just its dividend yield, or even just its yield and P/E ratio. (A price-to-earnings ratio is also dependent on a stock price. A very low P/E can reflect a bargain or a poor investment that has crashed.)

For example, Banco Bradesco is based in Brazil. That offers potential, as Brazil has a massive population and a developing economy. But it also offers risks, as the nation is in the midst of political and economic unrest. Note that the company is paying out effectively all its earnings in dividends. That leaves little room for dividend growth, and even if reduced by 50% this would still be a solid payout.

Banco Santander, by the way, did recently slash its own dividend by two-thirds. Based in Spain and with significant Brazilian operations, it has been hit by weakness in those markets and is bolstering its financial health in part via the dividend cut. (It has also paid many dividends in stock, not cash, diluting its stock.)

Photo: Mike Mozart, Flickr.

StandoutsAll of the companies in the list above sport four-star or five-star ratings in our CAPS community of investors rating stocks. That's pretty good. Two particularly promising institutions are Toronto-Dominion Bank and New York Community Bancorp.

Toronto-Dominion is appealing in part because it is relatively conservative, sticking mainly to retail banking (for about 80% of its business). While other banks are pushing hard into mobile and online banking, Toronto-Dominion is pushing convenience by maintaining flexible hours -- it's open on evenings and weekends! It has tripled its assets over the past decade, and its payout ratio suggests plenty of room for further dividend growth.

New York Community Bancorp is a regional bank, but it is nestled in a robust region. Its loan portfolio is quite appealing, featuring mainly mortgages for apartment buildings in the New York City region. Since it enjoys low default rates and relative stability, it can afford to pay out much of its earnings in dividends. Some worry that since it has been so successful, if it gets much bigger it will become a more major bank -- a "systemically important financial institution" -- subject to guidelines such as paying out less of its earnings.

As you look for banks paying hefty dividends, be sure to look at each contender's full picture.

The article 7 High-Dividend Stocks in Banking originally appeared on Fool.com.

Longtime Fool specialistSelena Maranjian, whom you can follow on Twitter,has no position in any stocks mentioned. The Motley Fool recommends The Bank of Nova Scotia (USA). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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