Updated on January 11th, 2023 by Samuel Smith
New York Community Bancorp (NYCB) is currently offering a very attractive dividend yield of 7.4% while it is also trading at a low forward price-to-earnings ratio of 7.4.
It is one of the high-yield stocks in our database.
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NYCB is part of our ‘High Dividend 50’ series, where we cover the 50 highest yielding stocks in the Sure Analysis Research Database.
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In this article, we will analyze the prospects of New York Community Bancorp.
Business Overview
New York Community Bancorp is the parent of a state-chartered bank called New York Community Bank. The holding company was founded in 1993 but the banking operations of the company can be traced to 1859. The bank focuses on multifamily loans in New York City, particularly in buildings that are rent controlled. That book of business is about three-quarters of its entire lending portfolio which also includes acquisition, development, construction, and commercial and industrial (C&I) loans. They also recently closed a merger with Flagstar FBC) to further diversify their offerings and expand their market presence. The bank has a market capitalization of about $6.2 billion.
The stock price has floundered lately due to a weakening mortgage market as well as uncertainty surrounding its proposed acquisition of Flagstar. However, they recently received full regulatory approval and the deal has since closed, resulting in a better diversified bank and a more stable outlook for the company moving forward.
In the third quarter, New York Community Bancorp generated solid performance. Adjusted earnings per share were unchanged year-over-year, coming in at $0.31 and easily covering the $0.17 per share quarterly dividend. Net interest income rose by 2.5% year-over-year, while total revenue increased by 3% year-over-year.
The company continued to generate solid loan and deposit growth, lower operating expenses, and strong levels of asset quality. Year-to-date total loans held for investments are up by 9% on an annualized basis. Multifamily loans saw particularly strong growth – up by 10% year-to-date on an annualized basis – and the company continued to see several growth drivers.
The company’s underwriting continued to perform very well with nonperforming assets declining by $6 million sequentially and standing at a mere 8% of total assets. The company also recorded zero net charge-offs during the quarter.
Due to rising rates, NYCB faced margin compression during the quarter, but still managed flat year-over-year adjusted earnings per share due to year-over-year topline growth.
Growth Prospects
New York Community Bancorp expects its recently closed merger with Flagstar to unlock significant growth opportunities for the combined company. As NYCB’s CEO – Thomas Cangemi – recently commented, this merger will help the business 1) expand product offerings and 2) expand the company’s geographic reach:
The combination of our two companies will allow each of us (NYCB and FBC) to continue our transformation to a full-service commercial bank by broadening our product offerings while expanding our geographic reach with no branch overlap.
As its name implies, NYCB does most of its business in New York. The FBC acquisition helps the combined company to expand into Michigan and other areas, helping NYCB to grow from 236 branches to 394 branches. Basically, the acquisition helps NYCB buy its way into the markets that FBC is already established in.
NYCB’s core business is built around providing multifamily loans for non-luxury residential apartment buildings. While they specialize in this type of lending, they also operate in adjacent markets, like Commercial Real Estate and Specialty Finance loans and leases. FBC also specializes in mortgage loans and generate a large chunk of their revenue come from community banking, which basically means they act as a regional bank for their local area.
There are cross-sell opportunities from this merger, because FBC has a stronger business when it comes to deposits, while NYCB is stronger with lending and the merger should help NYCB expand its geographic presence.
Besides the core businesses at NYCB and FBC, the company has also launched new Banking as a Service and Mortgage as a Service products that have seen early success.
Basically, more and more fintech companies are popping up and bringing services directly to consumers. NYCB is able to serve these fintech companies by delivering their BaaS and MaaS offerings to help the fintech companies with backend functions.
Competitive Advantages
NYCB is an efficient operator as it enjoys a superior efficiency ratio and better non-performing loan numbers than their peer group. While its loan portfolio is very concentrated and generally suffers from rising interest rates, it significantly diversified its loan portfolio and also gained better protection against rising interest rates via its merger with Flagstar.
Given its strong relationships formed through its presence in the communities and industries it services for decades, its venture into fintech via its BaaS and MaaS offerings, its efficient operating model, effective underwriting methodology, and the new synergies and improved offerings expected from its merger with Flagstar, New York Community Bancorp is well positioned to drive profitable growth for shareholders for years to come.
Dividend Analysis
New York Community Bancorp pays out a very attractive current dividend that yields 7.4%. Furthermore, it is very well covered by earnings with a 54% payout ratio expected in 2022. When combined with its well-capitalized balance sheet and conservative and proven underwriting approach, its dividend looks very safe for the foreseeable future.
In fact, management reiterated its commitment to paying a “very strong dividend” after the merger with Flagstar closes, stating on its latest earnings call:
we’ve had a long history here of a very strong dividend and is very focused capital management process. We are very comfortable with asset quality. We’re very comfortable with how we look at our capital deployment. And going forward, we feel very strongly that we’ll continue to pay a very strong dividend. And obviously, this has been a history and culture of the company going back for decades. So we’re very confident. The company had record earnings going into this — in the beginning of the first half of this year. We’re seeing some margin pressure based on substantial movements on Fed action. However, over time, this company will navigate through it and we’ll have strong asset quality and foster on a stand-alone basis, a very focused expense management philosophy to generate good returns to our shareholders and a very strong dividend. So that’s always been our culture. On a projected combined basis, we just earn more
Moreover, New York Community Bancorp sustained its dividend per share through both the Great Financial Crisis as well as through the COVID-19 outbreak, so its business model and balance sheet have weathered some very severe stress events.
That said, the company has also not raised its dividend in a very long time, so it is not a committed dividend grower. While the company could raise its dividend moving forward given its relatively low payout ratio, there is no guarantee that they will do so given their history. Still, given its high current yield, investors do not need any dividend growth to generate a very attractive yield on cost.
Final Thoughts
New York Community Bancorp is a conservatively and efficiently run bank that now has exciting new growth opportunities thanks to its recent merger with Flagstar. Furthermore, it trades at a cheap valuation and offers a safe and attractive dividend yield.
While investors should not count on much – if any – dividend growth from this stock, they can count on a very safe and attractive current dividend yield and decent capital appreciation potential given the cheap valuation and improving growth prospects.
If you are interested in finding high-quality dividend growth stocks and/or other high-yield securities and income securities, the following Sure Dividend resources will be useful:
High-Yield Individual Security Research
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- 10 Highest Yielding Dow 30 Stocks | Dogs Of The Dow
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Other Sure Dividend Resources
- Dividend Kings: 50+ years of rising dividends
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- High Dividend Stocks: 4%+ dividend yields
- Monthly Dividend Stocks: Individual securities that pay out every month
- Blue Chip Stock: Kings, Aristocrats, and Achievers
- MLPs: List of MLPs and more
- REITs: List of REITs and more
- BDCs: List of BDCs and more