Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Regional Banking Dividend: Too Good to be True?
Old 03-23-2008, 01:55 PM   #1
Thinks s/he gets paid by the post
redduck's Avatar
 
Join Date: Mar 2005
Location: yonder
Posts: 2,053
Regional Banking Dividend: Too Good to be True?

So I'm looking at the Market Watch website checking out an ETF: KBW Regional Banking as of 03-20-08. The website indicates that the dividend rate is 10.46%. (Be still my heart). I understand that some of the banks in this ETF will cut their dividends. But, what am I missing here?
__________________

__________________
redduck is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-23-2008, 04:13 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Jun 2005
Posts: 1,543
why aren't all the pro's jumping into these stocks to bring the dividend back down to normal levels?
__________________

__________________
al_bundy is offline   Reply With Quote
Old 03-23-2008, 04:26 PM   #3
Thinks s/he gets paid by the post
redduck's Avatar
 
Join Date: Mar 2005
Location: yonder
Posts: 2,053
You're intimating I'm not a pro? (Great, my cover is blown).

Actually, I agree with your rationale, except if the pros were really, really good at what they do, well, Bear Stearns wouldn't have happened--lots of pros owned Bear Stearns--and the Fed wouldn't have to be dropping interests like they are.
__________________
redduck is online now   Reply With Quote
Old 03-25-2008, 12:28 PM   #4
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
I happen to think a lot of regionals are screaming buys now. That's especially true for ones which service many of their own loans and have relatively conservative lending practices. These are not going to be slimed by too much subprime, may not see massive foreclosures if they use conservative LTV and income guidelines, AND are seeing an ever-increasing spread between the rates they pay for money and the rates they get for lending.

I expect some of them to post blowout earnings. I just don't know which ones have all the characteristics I've listed above.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 03-25-2008, 02:21 PM   #5
Recycles dryer sheets
 
Join Date: May 2007
Posts: 137
Regional banks may not have been involved in subprime lending but they may have been financing local builders who or either stuck with property or have cut way back on lending. Either one will reduce earnings. Also regional banks depend a lot on commercial/business lending for their income. With the economy tanking that will also cut back on earnings. So be careful with regional banks their earnings are subject to downturns just like the big guys. Earnings out of line may be a sign of trouble.
__________________
Freein05 is offline   Reply With Quote
Old 03-25-2008, 03:52 PM   #6
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,315
Quote:
Originally Posted by redduck View Post
So I'm looking at the Market Watch website checking out an ETF: KBW Regional Banking as of 03-20-08. The website indicates that the dividend rate is 10.46%. (Be still my heart). I understand that some of the banks in this ETF will cut their dividends. But, what am I missing here?
Yahoo shows the yield of KRE as 6.6%. I don't believe it is actually that high, let alone 10.5%. The problem with Yahoo, Market Watch, etc. is that they treat all distributions as dividends for the purpose of yield calculations, when in fact, they could include capital gain distributions, return of capital, etc. The only way to really know is to put the stocks in the ETF into a spread sheet, weight them the same way as in the ETF, and compute the dividend yield from the individual stocks' indicated annual dividend. I did this several month's ago, for KBE, the large bank index, and found the yield to be considerably less than indicated on Yahoo, even before subtracting the ETF's expense ratio of 0.35%.
__________________
FIRE'd@51 is offline   Reply With Quote
Old 03-25-2008, 06:01 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
It is best to go the ETF's sponsor website when you get weird stuff like this.
KRE is a State Street and they show the yield at 3.92% as 3/24
__________________
clifp is offline   Reply With Quote
Old 03-25-2008, 10:02 PM   #8
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,315
Quote:
Originally Posted by clifp View Post
It is best to go the ETF's sponsor website when you get weird stuff like this.
KRE is a State Street and they show the yield at 3.92% as 3/24
Even that is suspect. The 3.92% is the yield on the index the fund is supposed to track. Yet if you click on the Fund Detail tab on your link it shows a dividend yield of 6.01% for 3/24, and that is after a 0.35% ER. I would expect the fund yield to be the index yield less 0.35%, or 3.57%. That is why I would resort to a spreadsheet calculation.
__________________
FIRE'd@51 is offline   Reply With Quote
Old 03-26-2008, 10:26 AM   #9
Thinks s/he gets paid by the post
 
Join Date: Nov 2007
Posts: 1,052
I show the yield of KBE at 6.158% currently. I own quite a bit of a regional bank stock and I just feel way too uneasy to add more. I received their annual report and nothing in it gave me reason for hope in the near future.
Technically speaking, KBE needs to get above $48 to break its resistance. Until then, you are just bottom fishing. JMO
__________________
Art G is offline   Reply With Quote
Old 03-31-2008, 05:36 PM   #10
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Quote:
Originally Posted by redduck View Post
I understand that some of the banks in this ETF will cut their dividends. But, what am I missing here?
You're missing the website's assumptions and the equity's dividend history.

As was pointed out to me by another poster, KRE puts out a somewhat lumpy dividend:
21-Dec-07 $ 0.963
21-Sep-07 $ 0.468
15-Jun-07 $ 0.554
16-Mar-07 $ 0.269
15-Sep-06 $ 0.382

I think many financial sites multiply a quarterly dividend by four, divide by the last close, and call it some weasel words like Fidelity's "Dividend Yield (Annualized)". So at the 31 Mar closing price of $35.14 that 96-cent dividend works out to a 10.96% annualized dividend, which is exactly what Fidelity is quoting.

Yet the historical dividend yield is more appropriately quoted as (.269+.554+.468+.963)/$35.14= 6.4%. Which is what SSGA has been quoting.

A disquieting bit of additional data is that the fund kinda seems to have missed issuing a March 2008 dividend. Hmm. Maybe it's been declared but not yet distributed and won't be updated until it's credited on Wednesday?
http://www.ssgafunds.com/library/cap...1206026814.pdf

Brewer has pointed out before that many of these regional banks are more exposed to local loans given to construction companies than they are to subprime mortgages. The two Hawaii banks in the index, Bank of Hawaii & Central Pacific, have both staunchly declared that they're maintaining their dividends. So the banks may drop their dividends if told to. But despite the Treasury Sec's stern words I suspect that most of them will hold out until the regulators hunt them down and start beating them publicly.

We bought our shares last July at a cost basis of $42/share (which was an unbelievable bargain back then, let alone today) and we've been reinvesting the dividends. We'll hold on for another year or two and then see whether we sell for tax losses or donate the profits to charity. I've certainly demonstrated that I'm early to the party and that I cannot call a bottom.
__________________

__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Pension too good to be true? Midpack FIRE and Money 7 02-29-2008 07:36 PM
Too Good To Be True??? Dog FIRE and Money 7 06-07-2007 03:24 AM
Good Regional Food yakers Other topics 28 04-18-2007 06:03 PM
Too good to be true-right? laurence Young Dreamers 23 11-25-2005 01:26 PM
Too good to be true? MRGALT2U FIRE and Money 9 09-22-2005 08:33 PM

 

 
All times are GMT -6. The time now is 11:02 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.