Bank & Financial Dividend Stocks

Financial services is the largest dividend-paying sector on the US market by number of companies, and one of the highest yielding. It spans very different businesses: regional and national banks, insurers, asset managers, business development companies and specialty lenders, all classified together and all behaving differently.

Banks in particular have a distinctive dividend profile. Their payouts are constrained by regulatory capital requirements, which means dividend increases are subject to supervisory approval and can be suspended in a stress scenario regardless of how profitable the bank currently is. That happened across the sector in 2008 and, in muted form, during the 2020 stress tests. A long unbroken record at a bank is therefore a stronger signal than the same record elsewhere, because it means the payment survived those constraints.

The sector is also unusually sensitive to interest rates, and in opposite directions depending on the business. Banks generally earn more when rates rise and the gap between deposit and lending rates widens; business development companies and mortgage lenders can be squeezed by the same move.

Yields at the top of this list frequently come from business development companies rather than banks. Those are lending vehicles with very different risk, and their double-digit yields should not be compared like for like against a large bank paying three percent.