Will Bank Stocks Rally Again This Year?

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Financial stocks have rallied 140% since last March’s lows. Many investors are wondering if financials will continue their run this year given the jobless economic recovery currently underway.

An article titled “Do you dare buy banks?” in the latest edition of Bloomberg BusinessWeek mentions that financials in the S&P 500 are expected to rally 16% this year based on some analyst forecasts.

From the article:

“No U.S. industry has faster profit growth than banks and brokers, and no group is more bad-mouthed by investors. It may be time for them to get over their distaste, says Mark Giambrone, a fund manager for San Antonio-based USAA Investment Management, which oversees about $74 billion. “The stocks are clearly too cheap,” says Giambrone, whose USAA Value Fund (UVALX) owns Wells Fargo (WFC), PNC Financial Services (PNC), and Bank of America (BAC), among other financial stocks. “There may be some bumps in the road ahead, but for the most part those are reflected in valuations.” The Standard & Poor’s 500 Financials Index (S5FINL) of 78 banks, brokerages, and insurance companies is down 60% since peaking in February 2007, more than twice the drop of the S&P 500-stock index.

Many of Giambrone’s peers remain unconvinced that all the pain has been taken in financial stocks. A survey by Bank of America found financial shares the least favored stocks among 123 money managers. But earnings at financial companies rose an estimated 120% in the fourth quarter, accounting for all the income increase in the S&P 500, data compiled by Bloomberg show. Those financial company earnings should triple by 2011, climbing four times as fast as the market, analysts figure. Should those estimates prove correct, financial shares are trading at about a 15% discount to the S&P 500.”

Banks are still not out of the woods yet. After last year’s 140 banks failures, so far four banks have failed this year. In addition to the slowdown in foreclosure activity in the housing market, there are some signs that credit card charge-off rates are declining. A Reuters report yesterday said:

“U.S. credit card data for December showed some signs that fewer consumers were falling seriously behind in their payments.

Four out of six companies reporting credit card activity for December said charge-offs declined in the month.

Delinquency rates, which portend future credit card defaults, declined at all of the companies except JPMorgan Chase & Co (JPM.N), according to regulatory filings on Friday.”

In the tables below I have listed banks paying more than 3% dividends:

1) Bank Stocks Trading in the NYSE

[TABLE=294]

2) Bank Stocks Trading in the NASDAQ

[TABLE=295]

Investors have to be very selective in  picking up bank stocks as there are still many unknown headwinds that banks face this year. To quote former Secretary of Defense Donald Rumsfield:

“As we know,
There are known knowns.
There are things we know we know.
We also know
There are known unknowns.
That is to say
We know there are some things
We do not know.
But there are also unknown unknowns,
The ones we don’t know
We don’t know.”

While some of the banks above high yields because their share prices have fallen, there are some banks that are stable and are worth looking into. A few of these banks are Bank of Hawaii(BOH), Cullen/Frost Bankers Inc(CFR), etc.

Nine Natural Gas Stocks Yielding More Than 6% Dividends

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Natural gas prices in the U.S. rose this month due to the December cold snap which affected many states and the higher-than-anticipated storage withdrawals in December. Other reasons that have been attributed to the price increase include declines in gas production and higher oil prices. After hitting a seven year low last September prices have been trending up. Extremely cold winter season this year may keep prices high as the demand picks up.

The following nine stocks in the natural gas sector yield dividends in excess of 6%:

[TABLE=293]

Some of the companies listed above are integrated firms with operations in gathering, compressing, treating, and transporting natural gas and other energy products. For example, Kinder Garden Energy Partners (KMP) owns and operates pipelines and storage facilities for crude oil, refined petroleum products and natural gas in the U.S. and Canada.

11 Electric Utilities Paying More than 6% Dividend Yields

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Electric utility stocks are considered to defensive stocks as they offer relatively stable and steady growth. Investors are also attracted to them because of their excellent dividend yields. Since electricity is a basic necessity most people pay their bills on time unlike cell phone services and other items.

The utility sector is highly regulated in most parts of the world. In many markets electric companies operate as monopolies. This is especially true in most emerging countries where until recently industries such as the power sector were under the control of governments. The demand for power is growing rapidly in emerging countries such as China, India, Brazil, etc. due to the boom in infrastructure buildup and usage by consumers.

The table below lists electric utility stocks paying more than 6% dividends based on the closing price on January 13, 2010:

[TABLE=292]

CPFL Energia S.A (CPL) of Brazil had 6.4 million consumers at the end of 2008. The annual average EPS growth in the last 5 years was about 35%. The rest of the stocks in the above list are utilities based in the US.  Progress Energy(PGN) distributes electricity in portions of North Carolina, South Carolina and Florida and has 3.1 million residential customers. Xcel Energy Inc and Dominion Resources(DRU) Inc have 7%+ yields.Dominion serves customers in 12 states. Minneapolis,MN-based Xcel Energy(XCJ) operates both in the electricity and natural gas sector and has 3.4 million retail electricity customers in eight Western and Midwestern states.

36 Major Global Risks in 2010

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The World Economic Forum yesterday released the Global Risks 2010, its annual report on the most important risks facing the global economy this year and beyond.

Graphic

Global-Risks-2010

This  year’s report “highlights the impact of the fiscal crisis and the social and political implications of high unemployment rates in several major economies as key concerns. Notably, the current models for health, education and unemployment protection have been put under severe strain by the fiscal crisis, notwithstanding the longer-term implications of increasing life expectancy.”

More details can be found here.

9 Foreign Stocks Yielding More Than 5% Dividends

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In August 2008, I ran the stock screener with the following criteria:

1. Stocks must trade on the NYSE
2. Market cap. >= $25B
3. Must have dividend yields of at least 5%

This resulted in 28 stocks at that time. 14 of these stocks were in the financial sector and 21 were non-US companies.

When I ran the stock screener with the same conditions today, just 15 stocks are displayed. Many of the stocks that appeared in the 2008 list are not present now. After the global credit crisis banks slashed dividend payments and hence they did not make it to this list with the exception of Bank of Montreal.

Foreign stocks paying at least 5% dividend and trading on the NYSE are:

1.Bank of Montreal(BMO)
Current Dividend Yield: 5.24%
Canada

2.BP Plc(BP)
Current Dividend Yield: 5.16%
U.K.

3.Deutsche Telekom AG(DT)
Current Dividend Yield: 7.07%
Germany

4.Eni Spa(E)
Current Dividend Yield: 5.57%
Italy

5.France Telecom(FTE)
Current Dividend Yield: 6.73%
France

6.Telefonica (TEF)
Current Dividend Yield: 5.54%
Spain

7.Total SA(TOT)
Current Dividend Yield: 5.13%
France

8.Royal Dutch Shell plc (RDS.A)
Current Dividend Yield: 5.50%
The Netherlands

9.EcoPetrol SA(EC)
Current Dividend Yield: 5.50%
Colombia

U.S. companies currently paying 5% or more in dividends are:

Bristol Myers Squibb Co.(BMY), Eli Lilly & Co. (LLY), Altria Group, Inc. (MO), AT&T Inc. (T), The Southern Company (SO) and Verizon Communications Inc. (VZ).