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Regional bank stocks are having an underwhelming year, but investors who are on the hunt for good dividend payers might find a few gems, according to Piper Sandler. The SPDR S & P Regional Banking ETF (KRE) is off by about 1% in 2024, paling in comparison to the tech-driven 17% surge for the S & P 500 . But don’t just focus on the banks’ performance — their rich dividends can help boost investors’ portfolios. “Given the recent pullback in bank stock prices, we are finding lots of regional and community bank stocks that have eye-catching dividend yields,” wrote Mark Fitzgibbon, managing director at Piper Sandler, in a Thursday report. The firm sought out “banks with dividend yields over five that are poised to thrive.” There is more to picking solid dividend stocks than just going by the yield. That is because a high dividend yield is attractive at first blush, but it may also be an indication that the stock’s price has been on a downturn. Investors will need to make sure they pick names that have a history of steady, sustainable payments. Fitzgibbon’s team screened the major exchanges for banks that are offering current dividend yields above 5%. It eliminated banks that had a dividend payout ratio greater than 85%, as well as those with tangible common equity ratios that were less than 7%, figuring companies that are below that threshold may be pressured by regulators to cut their dividends to conserve capital. Piper Sandler further whittled down the list by eliminating companies that had cut their dividends over the past decade. Finally, the firm only chose banks that it currently rates as overweight. Here is a handful of companies that made the cut. Brookline Bancorp , which is off 15% in 2024, offers a dividend yield of 5.8%. Fitzgibbon highlighted several reasons why his team prefers the Boston-based bank. “We believe that Brookline is a high-quality commercial bank with steadily improving profitability metrics,” he wrote. “We think BRKL operates in desirable markets and is situated well to take share from larger banks.” Fitzgibbon also thinks the company “manages risk well” and should pull through the current environment better than most banks. Indeed, today’s higher interest rate environment has had the negative side effect of raising the institutions’ funding costs and pressuring banks’ commercial real estate loan holdings. Smaller banks have felt the pain of high rates more keenly than their larger counterparts. Piper Sandler called out Heritage Commerce of San Jose, California, as a bank worth snapping up. The stock pays a dividend yield of 5.7%, and shares are off by nearly 9% in 2024. “It’s a solidly profitable institution with an attractive deposit base and strong capital position, and the stock is trading at a discount to peers,” said analyst Andrew Liesch. He noted that no bank will be spared from credit deterioration in a softening economy, but he expects Heritage’s problem loans will be fewer and “more manageable” compared to peers. “Plus with its robust capital position and a dividend payout near 60% (we also think earnings are set to rise in the quarters ahead), it has plenty of cushion supporting the dividend.” Pacific Premier Bancorp , based in Irvine, California, also made the firm’s list. Analyst Matthew Clark likes the stock’s attractive valuation and potential catalysts that could boost earnings in the second half of this year. The stock is down 15% in 2024, and it offers a dividend yield of 5.4%. “We continue to view PPBI as a solid holding due to its more conservative credit approach, higher quality funding profile, and strong capital levels,” Clark wrote.
