Valley National Bancorp: Attractive Dividend Yield Coupled With Possibility Of Price Appreciation

Valley National Bancorp (VLY), a bank holding company, is currently providing an attractive dividend yield of 4.12%. The company has a history of dividend cuts, however we believe that chances of a cut in 2019 are almost non-existent. We are confident that VLY will maintain its cash dividend because we expect earnings to increase in 2019, and because the company is currently at a comfortable payout ratio. Further, our valuation analysis shows that the company is currently undervalued, and therefore has the potential for price appreciation.
Still, we caution that risks are high for this bank because it had a loan portfolio related to taxi medallions worth $130.2 million as of December 2018. Fortunately, some allowance has already been booked as the company has recognized that outlook for this sector is bleak due to ride hailing apps.
VLY’s Dividends Appear Secure
We expect VLY to provide a high forward dividend yield of 4.12%. The company has consistently paid out $0.11 every quarter since 1Q 2014, but it has a previous history of slashing dividends. The company’s dividends reduced from 2009 to 2013, as shown in the chart below.

The chart above shows that dividends were cut due to fall in earnings. As earnings have improved over the past one year, the payout ratio has declined, implying that VLY’s dividend is safer now than in the past. Our expectation that earnings will rise in 2019 strengthens our assertion that VLY’s dividends are secure for at least... Read more

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