8 banks: Fat yields and looking safe

More and more banks are slashing their dividends or announcing new subprime bombshells. But some banks are holding up just fine.

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By Paul R. La Monica, CNNMoney.com editor at large

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NEW YORK (CNNMoney.com) -- There aren't many reasons to own financial stocks these days.

Many of the big brokerages on Wall Street as well as large regional banks and savings and loans are reporting huge losses and slashing their dividends.

KeyCorp (KEY, Fortune 500) is the latest to do so. The Cleveland-based bank announced this morning it is cutting its dividend in half. It joins Citigroup (C, Fortune 500), Wachovia (WB, Fortune 500), Washington Mutual (WM, Fortune 500) and cross-town rival National City (NCC, Fortune 500).

And it could get a lot worse.

Oppenheimer & Co. bank analyst Meredith Whtiney, who lately has been the most prescient analyst covering financials, has been warning that more dividend cuts are likely. Some may eliminate their dividends entirely, she says.

That's a bad sign since big yields and dependable payments might have been the only reason to own a lot of these stocks. KeyCorp''s stock plunged more than 10% this morning.

But amid all this doom and gloom, it's easy to lose sight of the fact that there are some banks that did not get swept up in the subprime mess. Many of them still pay big dividends and are likely to continue doing so for the foreseeable future.

With that in mind, I ran a screen to find some reasonably-sized bank stocks that pay dividends yielding more than the S&P 500's average of 2.1%.

And to ensure that these dividends are not at risk of being cut, I made sure that each company is expected to make money this year, have lower debt loads than their peers and have not seen their stock prices plummet by a large amount. (Keep in mind that since a dividend yield is calculated by dividing the dividend by the stock price, many banks have big yields only because their stock prices have plunged.)

Topping the list is U.S. Bancorp (USB, Fortune 500), the sixth-largest commercial bank in the country. The bank is a favorite of Warren Bufffett - Berkshire Hathaway (BRKA, Fortune 500) is the largest shareholder - and profits are actually expected to increase slightly this year.

Toss in the fact that U.S. Bancorp has a lower debt load than most of its competitors and it's easy to see why the dividend, which yields an impressive 5.6%, is probably not just safe but likely to grow. In fact, U.S. Bancorp has raised its dividend five times in the past five years.

That's a big reason why Fortune recently decided to add the stock to its Fortune 40 list of best stocks for retirement.

Buffalo-based M&T Bank (MTB) is another financial stock that should continue to reward investors. Its dividend yields 3.6% and earnings are expected to increase 14% this year. And M&T is also a top of holding of Berkshire Hathaway.

Is it a coincidence that the Oracle of Omaha has loaded up on banks that have largely avoided the most toxic loans? I don't think so.

Two large Canadian banks - Royal Bank of Canada (RY) and Toronto Dominion (TD) - made my list as well. These banks have also held up much better than many of their American counterparts.

In fact, my colleague David Ellis recently wrote about how some industry experts think these two banks may wind up becoming a bigger presence on Wall Street now that Bear Stearns has been absorbed by JPMorgan Chase (JPM, Fortune 500).

Finally, there are a slew of well-run, risk-averse smaller regional banks and thrifts that pay healthy dividends and do not appear to be in any imminent financial danger.

Kansas City-based Commerce Bancshares (CBSH), New York Community Bancorp (NYB), Bank of Hawaii (BOH) and Washington Federal (WFSL)(not to be confused with WaMu) are just a few of several banks and savings and loans that are expected to post rising profits this year. That means their dividends, which yield in a range from 2.3% to 5.2%, are not likely to get cut any time soon.

So even though Meredith Whitney may be right - the big banks that bet badly on subprime may have to keep pruning their dividends - there are still other banks stocks out there that should continue to offer investors a steady income kick in these uncertain times.

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