Dividend Yields Return, Dividends Do Not

Dividend yields on big bank stocks have been making a comeback even if dividends have not.

A strong run in large-cap bank stocks from about the middle of 2010 to the middle of 2011 eliminated the yield advantage that big banks historically held over small- and mid-cap names in the sector. But a selloff in big bank stocks in the second half of 2011 restored a rough parity. Even at $5 a share, Bank of America, with its token payout of a penny per quarter, would offer a dividend yield of close to 1 percent.

Before the crisis, the KBW Bank Index, a group ranging in size from JPMorgan Chase to the $20 billion-asset Cullen/Frost Bankers, had a median dividend yield that was about 50 percent higher than for the Nasdaq OMX ABA Community Bank Index, a group of about 100 actively traded names with a median $4.2 billion of assets. (Three companies-Commerce Bancshares, People's United Financial and Zions Bancorp-are in both groups, but are ranked only with the KBW Bank Index members in the table at right.)

At roughly 3 percent in a "normal" year like 2007, the dividend yield for the KBW Bank Index was well ahead of the S&P 500 Index median of about 2 percent. The crash in large bank stocks in late 2008 and early 2009 juiced the median for the KBW Bank Index to a high of almost 14 percent. The tumble in smaller bank shares, though less severe, pushed the median dividend yield for the Community Bank Index to about 6 percent.

Industrywide, bank holding companies slashed dividends by 80 percent from the second quarter of 2008 to the second quarter of 2009, with the members of the KBW Bank Index making particularly sharp reductions. (The yield data here reflects dividends declared over the preceding 12 months, meaning that actual changes in payouts appear with a delay.)

Payouts to shareholders edged back up under capital plans approved by the Federal Reserve early in 2011, and banks are seeking to expand them further after another round of stress tests that were underway as 2012 began. But at an aggregate $4.6 billion in the third quarter, bank holding company dividends are still about a third of their pre-crisis levels.

There are exceptions to the pattern. New York Community Bancorp paid about $80 million to $90 million in dividends each quarter throughout the recession, and has been distributing about $110 million quarterly since the beginning of 2010. It began 2012 with the highest dividend yield among companies in the KBW Bank Index.

Likewise, Commerce Bancshares has been paying out about $20 million a quarter since the beginning of 2007, achieving a remarkably steady yield of roughly 2 percent to 2.5 percent. Its payout ratio, or dividends as a percentage of net income, has recently been on par with periods leading up to the recession that began in late 2007 at about 30 percent.

In the Community Bank Index, top yielding names like Renasant and NBT Bancorp have maintained stable dividends. Here too, however, gyrations in stocks have been an important factor, with a slide in Renasant shares more than doubling the stock's yield since the end of 2006.