Traditionally investors have been attracted to utilities and bank stocks their dividends and stable growth. However the past couple of years have shown that many of that financial stocks do not fall in that category any more.
Despite the so-called recovery, some of the foreign banks have not resumed paying dividends.Since dividends come out of profits it is a very good indicator of performance than most other factors. Some of the foreign banks are majority-owned by the government after they were bailed out with billions in capital infusion. Hence these banks are under restrictions to payout dividends to investors even if they earn profits. For example, 84% of Royal Bank of Scotland (RBS) shares is owned by the British government. that amounts to 90.6 billion shares. Similarly 41% of Lloyd’s Bank(LYG) is owned by the government amounting to 27.6 billion shares. When these holdings are sold, investors can expect further erosion in share prices from current levels.
The table below lists the current yields of foreign bank ADRs listed in the organized US exchanges:
[TABLE=451]
Note: Information posted above is known to be accurate. Please do your own research before making any investment decisions. Canadian banks are excluded in this list.
Hence investors have to be highly selective when picking up bank stocks. Since most of them have risen significantly from last March’s low, further price increases must be accompanied by higher profits and not just expansion in P/E. It is a good idea to keep an eye on reinstatement of dividend payments from those that don’t pay dividends now and any dividend increases from dividend payers.
