Jay Taylor: Last week I wrote about a regional bank stock that has run afoul of regulators. This company, Community Trust Bank (Nasdaq: CBTI), seems to be having trouble growing revenues after giving up its reportedly “unfair and deceptive” fee policies.
My advice to avoid CBTI shouldn’t be taken as advice to avoid all regional banks. In fact, this often-ignored category of companies provides a relatively safe and promising investment opportunity.
The top three regional bank stocks offer superior yield and higher year-over-year growth rates than the top three too-big-to-fail banks. Just look at the table below.
Big banks used to be a source of reliable dividend income for investors. But this is no longer the case. Bank of America (NYSE: BAC), JP Morgan (NYSE: JPM) and even the much more risk-averse Wells Fargo (NYSE: WFC) no longer offers the safety or growth that it used to.
Enter the country’s regional banks.
This category of banks often focuses on one state or a cluster of nearby states. These banks are also devoted to the boring business of taking deposits and issuing loans, not the kind of risky financial instruments that almost sank the entire global financial system in 2008. That kind of business makes for safe and sustainable growth.
Here are the top three regional bank stocks.
Regional Bank Stock #1: Cullen/Frost Bankers (NYSE: CFR)
My colleague Chris Preston wrote about Cullen/Frost last week in his article about the top dividend stocks for summer 2014. As you can see from the table above, Cullen/Frost doesn’t offer the highest yield among the regional banks. In fact both Wells Fargo and JP Morgan offer a slightly higher dividend yield.
But when you compare the growth rates of the big banks to that of Cullen/Frost, this Texas-based bank emerges as the clear winner.
Cullen/Frost is also a dividend champion. It is known for having increased its dividend every year since 2000. Cullen/Frost is also highly regarded by dividend investors, as the bank did not have to cut its dividend during the financial crisis.