Another factor that should be considered here is that U.S. Treasury rates are beginning to rise. Historically low lending rates have crushed banks’ ability to charge high yields on the money they lend out. However, as rates rise, the average yield on loans is expected to rise, which will result in bigger net profits for banks like First Niagara.
Show me the money, First Niagara
The really compelling aspect of First Niagara, other than impressive credit quality relative to many of its peers, is that it consistently pays out a premium dividend.
Source: Nasdaq.com.
*Assumes quarterly payout of $0.08 for remainder of 2013.
Even with the 50% cut to its payout in 2012 to conserve cash for the HSBC Holdings plc (ADR) (NYSE:HBC) branch deal, First Niagara Financial will have paid out $4.65 per share in cumulative dividends between 2004 and 2013. Based on its closing price on Friday, this translates to a dividend payback of 44% over the trailing decade! That’s phenomenal and speaks to a company devoted to rewarding shareholders.
Furthermore, based on this year’s projected EPS, First Niagara is paying out just 43% of its earnings in the form of a dividend. Being historically low for First Niagara, it only seems logical to expect that a dividend increase of perhaps a penny or two per share could be on the way for fiscal 2014.
Foolish roundup
Sometimes you have to dig beneath the surface in the financial sector to find the diamonds in the rough. First Niagara certainly didn’t please shareholders with its financing efforts to make the HSBC Holdings plc (ADR) (NYSE:HBC) deal happen, but now they’re beginning to reap the rewards of having additional branches throughout New England. Now that it’s trading at just 81% of book value and 13 times forward earnings with a slew of improving balance sheet metrics, I can’t help feeling incredibly optimistic about First Niagara Financial Group Inc. (NASDAQ:FNFG)’s future. Tack on a 3% yield that’s returned hefty amounts of dividend income to investors over the past decade, and you have all the reasons you need to count First Niagara as an income investor’s dream stock.
The article 1 Great Dividend You Can Buy Right Now originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of KeyCorp.
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