NYB stock is being held back by the big guys because of a concern about a divy cut. Currently, if one holds 1000 shares the expectation is that he/she would receive $1200 annually in divy. That equates to 8.6% or so. Most banks pay in the area of what 2-4% correct.
So let's go through some numbers. If the divy is cut to .15 x quarter from .25 cents the annual distribution would be $600.00. A 40% cut and the distribution would now be in the 5% range. Still high by banking standards.
I may be wrong about this but I think that at a 5% distribution rate more investors would be interested in the stock as they would feel that the divy would not be cut further and that would drive the stock higher. In time, ( let's plan for 3 years) the stock would have a better chance of reaching the $16 level which would then be distributing it's $600 dollar annual divy at a 3.75 rate of interest. A rate more consistant with banks. (Investors, in my opinion, would feel that NYB would have a better chance of indeed increasing the divy hence a chance for even more stock appreciation above the $16 level. But let's stay with the $16 number.
If NYB stays with the .25 divy for the next three years and the stock hovers in the $12-13 range one would have received $3000 in divys during that period with the stock price around the same. With a cut to .15 an investor would have received ony $1800. Technically a $1200 loss. But wait, if one were to buy now,and if the stock does go to $16 after 3 years or so, the stock which at $12 was worth $12,000 is now worth $16,000. Now, by selling the stock an investor would be $4000 ahead. (The move of the stock to $16 from $12.) And the person who buys at $12 now would receive the .25 divy until and if NYB cuts it. Obviously, if an investor bought NYB at a price higher than $16 this does not work well.
Okay, investors smarter then me jump in. What am I missing?
I think the stock price should be higher because of the yield. If and when the dividend is cut then you could expect the price to be lower accordingly.
Expecting NYB to conform to the banking industry norm is a poor reason for a dividend change imo.
You are arguing as proponent of growth over yield. You would rather pay a higher stock price for a much lower yield hoping that the money would be used for successful, profitable growth. You also assume the majority of investors would as well, and then you all happily sell your stock for a profit and move on.
What a day for a daydream.
The payout being so high with difficult economic environment may require an adjustment, but to keep the stock price down like this is ridiculous imo.
Don't forget if you sell you need to pay capital gains/loss and that should be considered in the analysis.
I'm not sure if the Bd of Directors look at the price of the stock and decides to cut the divy because the yield seems too high. The .25 divy was being paid even when NYB was in the 16 to 19 range before the 2008 debacle hit. It seems like they are being pretty generous paying out a good chunk of the EPS though and that's what make everyone so nervous. You would think they would be a little more greedy. If EPS goes down, or if there are any major changes on the B of D then I believe the divy will be threatened.
In response to the stock going up...I'm normally a long investor but I had a similar situation and I sold a good divy stock after it went up so much that I figured the same logic...if I sell it now then the gain far outreaches the divy payout for many years so take the money and run... so I sold it. I re-invested in what I considered a safer stock which did okay and paid a lower but decent yield and put some in a local credit union 5 yr CD at 3.29% (impossible to find now). But when I look back now I would have collected more payouts on the first stock and basically kept the same principal. When tax time came I had to make a pretty big capital gain payout too. But I guess every scenario is different. I'm betting on NYB to do well in the long run so I'm keeping a small % here.
I think the Board will continue the .25 qtly div. The stock price will make new 52 week highs later this year, especially if Mitt Romney looks like a winner in November. The div along with the stock price moving thru the teens will bring the yield down to 5-7%. Good months coming!
P.S. - I added to my existing position at $11.55 :)
i owned fnfg. and sold the day after they announced the cut. the stock price didnt even drop. i ended up selling it for the same price i bought it for. it then started to drop a little but not 35%.
You have not missed a thing, either way shareholders win. If the interest rates go up in a few years, and all banks go up, NYB will benefit also. Meanwhile >8% Divy is not bad to wait and see. I do not see the downside of a divy cut (short term) nor waiting a few years for the interest rate curve to improve for banks (long term). This is a difficult market and NYB is a great place to hide out and make some money, If divy is cut and stock goes up, it is OK and if it is maintained status quo, eventually the stock price will go up as all banks will go up.