Dividend.com has added a community bank to the Best Dividend Stocks List and removed a regional utility from the list.
Whenever we talk about real estate and our Best Dividend Stocks List, we always mention that ‘location, location, location’ is a huge determinant of success. After all, where you operate has a huge effect on your cash flows, profits and ability to drive future dividend growth. The same adage holds true for regional and community banks. Lacking the scope of major money center banks, a smaller bank’s operating area can make or break it and its investors.
Luckily for our new community bank pick, it happens to operate in one of the strongest and fastest growing areas of the country.
Since its founding 125 years ago, our new pick has continued to expand into the nation’s Sunbelt through smart M&A and buyout activity. That’s been a great strategy for our pick as the region is known for its strong economic growth. That’s continued to boost lending activity, deposits and, ultimately, profits at our new regional bank.
With the national and local economies continuing to grow and a hefty dose of financial de-regulation pushing it forward, our new regional bank should have the ability to keep its hefty pace of growth going and the dividends flowing for investors.
To summarize, here are five reasons why you should own this stock:
- It is a strong regional franchise operating in key states such as Alabama, Florida, Mississippi, Tennessee and Texas.
- It is smartly growing through strategic M&A activity in its core operational areas, instantly boosting its asset and loan base.
- It is a big benefactor of rising rates and expanding net interest margins. Those margins remained relatively stable over the last couple of years, with a healthy level of non-interest-bearing accounts that currently contribute roughly 30% of deposits.
- It is a big winner for tax reform. The firm expects to pay an effective tax rate within the range of 12% to 14% this year.
- It has a healthy payout ratio of 42% and high yield of 2.96%.
Soft Removal of a Utility From the Best Dividend Stocks List
Sometimes, even the best stocks can be dented by outside forces. That’s the case with our strong regional utility. Thanks to the Federal Reserve’s continued pace of rate hikes, high yielding securities like our utility pick have been abandoned by investors in favor of higher yielding bonds. As a result, our utility’s relative strength score has suffered enough that its pulled shares fall below our DARS threshold. With that, its overall DARS rating has slipped and we have been forced to soft remove the stock from our list. However, the firm’s strong cash flow generation and healthy payout ratio still make it an ideal pick for income seekers. We remain bullish on the name for dividend investors.
