Income investors can still look to financials.
Bank stocks have been particularly hard hit in 2020 by the pandemic, with major sector exchange-traded funds such as the $17 billion Financial Select Sector SPDR Fund (ticker: XLF) down more than 10% this year even while the S&P 500 has moved about 10% higher over the last 11 months or so. Some megabanks like Citigroup (C) and Wells Fargo (WFC) are down even more. But income investors looking for stability can still find a few reliable picks in the financial sector that pay a decent dividend. For the most part, these are modest, commercially focused banks that don’t take on big investment risks or other sophisticated operations. Right now, all seven of these stocks pay more than the typical dividend stock in the S&P 500.
East West Bancorp (EWBC)
Regional bank East West is an interesting play for investors who are looking for dividends but also want potential share appreciation. Case in point: The stock soared almost 20% in a single session at the start of November on the news of a potential vaccine amid the pandemic. Furthermore, EWBC stock surged about 35% from mid-May to mid-June around potential merger rumors. There is certainly volatility here, as evidenced by the big flop for shares in early 2020 immediately after the health crisis roiled markets. That said, there is also big upside potential — on top of a generous dividend, too.
Current dividend: 2.4%
Independent Bank Group (IBTX)
Texas-based Independent Bank provides various commercial banking products such as checking and savings accounts, mortgages and car loans, with nearly 100 branches spread between two states: Texas and Colorado. Unfortunately, many regional banks like IBTX have been hit hard by the pandemic that has shuttered businesses and driven up unemployment in some areas. If you look at a chart of this stock in 2020, you’ll see that while it was hit hard by the initial impact of the virus in the spring, it has come roaring back thanks to resilient operations. In fact, IBTX is set to post higher earnings per share than the prior year despite the disruptions and the company recently increased its dividend from 25 to 30 cents per quarter.
Current dividend: 2.1%
KB Financial Group (KB)
KB is the first international bank on the list, offering financial services to consumers and corporations mainly in South Korea. At $16 billion in market value, this bank stock is akin to major U.S. regional banks like M&T Bank Corp. (MTB) and KeyCorp (KEY), so it’s decidedly not a small-time outfit. Since it’s one of the larger players in Korea and Asia at large, KB offers investors a unique mix between an emerging-markets investment and a well-capitalized lender that generates reliable cash through commercial accounts, life insurance and commercial credit operations. With a yield that’s double some of the other picks on this list, it may be worth broadening your geographical footprint via this dividend stock.
Current yield: 4.4%
Lakeland Financial Corp. (LKFN)
With a market value of just more than $1 billion and only about 50 Lake City Bank branches, largely in northern Indiana, Lakeland is the smallest player on this list by many measures. But its strong management and durable earnings have proven that Lakeland stands as one of the better commercial banks on Wall Street right now. Earnings have topped expectations consistently this year, and the dividend has held firm at 30 cents per share each quarter. As a result, LKFN stock has actually outperformed stocks in all sectors by slightly outpacing the S&P 500 year to date. Considering many financial stocks have been hit hard in 2020, that’s a track record that investors can get excited about.
Current dividend: 2.2%
Mizuho Financial Group (MFG)
Even bigger than South Korea’s KB is Asian financial powerhouse Mizuho Financial, a Japanese bank with almost $2 trillion in assets at present and a market cap of more than $34 billion. The truth is that MFG could possibly be even larger if it weren’t for cultural and corporate pressures that have made it more risk-averse than its peers, largely steering away from complicated investment-banking operations or aggressive lending. That makes it a sleepy name that is mostly overlooked in a growth environment, but it’s decidedly attractive to investors during a volatile period for markets. With a huge dividend and a solid track record, MFG could be a great long-term bet for income-oriented investors.
Current dividend: 5%
UBS Group AG (UBS)
The roughly $50 billion UBS isn’t quite among the largest financial firms in the world, but the Swiss bank is certainly among the most respected names in the sector. UBS offers traditional operations that include personal and corporate banking services to asset management and investment banking — but unlike many of the U.S. megabanks that have struggled in 2020, this big-name financial stock has actually managed to plot a modest gain so far in 2020 and is among the best-performing banks out there. Though the stock only pays out dividends once annually in the spring, the annualized yield is still generous.
Current dividend: 2.7%
UMB Financial Corp. (UMBF)
UMBF is another regional bank that saw an initially sharp decline in its share price but a roaring comeback in recent months to get right back to where it started the year, even as other bank stocks remain in the red. Earnings per share are on track to finish flat as well, which may not be particularly impressive in a typical year but is noteworthy after the disruptions of 2020. The roughly $3 billion Kansas bank has punched above its weight when it comes to generating consistent results and hanging tough amid market volatility. That should give investors confidence for the future — as should the fact that UMBF just increased its payout to 32 cents a quarter in October, up 3.2% from the prior payout.
Current dividend: 1.9%
Seven bank stocks to buy for the dividends:
— East West Bancorp (EWBC)
— Independent Bank Group (IBTX)
— KB Financial Group (KB)
— Lakeland Financial Corp. (LKFN)
— Mizuho Financial Group (MFG)
— UBS Group AG (UBS)
— UMB Financial Corp. (UMBF)
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