Dividend Days

Its always fun to turn on CNBC and find out what all the hated sectors. “Stay away from X, talking head says, due to Y and Z factors” is an all too common statement. Some analysts will be bearish, some bullish, and of course Mr. Market will have his say as well. With the recent sub-prime mess and an uncertain outlook on how bad things will get, financial stocks have gotten crushed.

Some businesses have already been shaken out. Bear Stearns bit the big one, and got swallowed up by JP Morgan. If a financial institution that survived the great depression became so hopelessly laden with debt that it had to stage an emergency firesale to keep from going under, is anyone save? Maybe.

For me I’m looking to banks and trying to decipher which of them will make the cut. Those that remain will have the advantage of reduced competition, but will see a lot of pain in the short term. If you believe in the long term success of a financial firm and you’re willing to take some pain in the interim, you have a number of value picks with hefty dividend payments at your disposal.

For me, Bank of America is where I’ll be going. I think BAC has been crushed and written off a good amount of bad debt, but I think they will survive and, eventually, thrive. Currently trading at about $30 a share and at almost a 9% dividend yield, its obvious that investors don’t think their dividend is sustainable. In recent history, the Bank hasn’t shown a knack for slicing dividends, but these are unusual times. I’m going to pull the trigger on BAC, tuck it away, and wait for things to clear up. It’s risky, and I’m willing to admit that. They may have to cut their dividend, further driving down share prices, or the acquisition of Countrywide may not go as well as expected. However this is a long term play, and short term concerns like this are not in the cards. I may re-evaluate at a future date, but we’ll see how this plays out.