Banks Make Good Dividend Stocks

Written by The Dividend Guy on March 12, 2007

I have had good success with the bank stocks I have in my portfolio. Each of these holdings has a good dividend yield, consistently increases the dividend year after year, and have had good price appreciation to boot!

In my personal case, I can also extent this to financial stocks. In addition to Royal Bank of Canada, Citibank, and Bank of America, I also hold mutual fund company IGM Financial. In a recent article in the Globe and Mail, Rob Carrick talks about the much higher yield the top 10 banks have compared to the S&P CDN index:

The dividend yield for the S&P/TSX composite has on average been 1.7 per cent over the past 10 years, while bank shares have had an average yield of about 3.1 per cent. Thus the average annual total return — share price appreciation plus dividends — for bank stocks was 16 per cent over the past decade while the index made 9.3 per cent.

As a core component of a portfolio, I beleive that it has been very good for me to have a number of financial services stocks in my portfolio. The return they have generated from both dividends and sotkc price appreciation has been rewarding and I don’t see this changing in the future. That being said, with good performing stocks like this, one needs to be careful not to let them overpower a portfolio from a risk perspective. Banks will have some down years and depending on your timing you may not see the 16% the article talks about. However, as a base component to a good dividend portfolio, I strongly beleive that bank stocks are good to consider.


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1 Comment so far

  1. tllstaco March 14, 2007 5:47 pm

    Bank stocks make up a nice source of dividends for our portfolio. We own WB (4.1% yield) and BAC (4.4% yield). Nothing real exciting, just makes money at a steady pace. Stocks like these help our overall portfolio have a 3.15% yield.

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