Chief Income Strategist Marc Lichtenfeld and the Wealthy Retirement research team have followed New York Community Bancorp (NYSE: NYCB) for many years.
It’s a solid traditional regional bank with an attractive 5.4% dividend yield. It’s not surprising that we get a lot of questions about its dividend safety.
New York Community Bancorp operates 240 branches in five different states. The company specializes in multifamily loans.
With interest rates at all-time lows, it’s been very difficult for banks to maintain, let alone grow, their net interest income (NII).
NII is the difference between the interest a bank earns on its loans and the interest it pays out on its deposits.
Think of NII as a bank’s free cash flow. Banks use it to pay dividends.
Low rates make it hard for banks to earn interest on the loans they give out.
But New York Community Bancorp has been successful navigating today’s low interest rate environment. It has been able to maintain its NII throughout the pandemic.
Over the last decade, the company’s NII has flattened. However, Wall Street analysts expect NII to increase 18.2%, from $1.1 billion in 2020 to $1.3 billion in 2021.
New York Community Bancorp has not raised its dividend in more than 10 years. In fact, the company actually lowered its dividend per share from $1 to $0.68 back in 2016. The bank has maintained its payout ever since.
Through it all, New York Community Bancorp has maintained a very low dividend payout ratio. Normally, SafetyNet Pro likes to see a payout ratio under 100% for financial companies.
New York Community Bancorp’s payout ratio was just 34.5% in 2020, and it is projected to be only 26.8% in 2021!
This means the company has more than triple the cash coming in than it needs to support its dividend payments.
Even if NII falls, New York Community Bancorp should still be able to generate enough cash to cover its current dividend obligation.
The company’s NII growth expectations and its exceptionally low payout ratio make its dividend relatively safe.
Dividend Safety Rating: B
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