Intesa Sanpaolo: 9% Yield, But If It Looks Too Good To Be True, It Probably Is

Since I last wrote on Intesa (OTCPK: IITOF) in May (article here), the stock has held up well, being just 2% lower compared to a fall in the European banking sector of 11% over the period. Intesa has done marginally better than UniCredit (OTCPK: UNCFF), much Italian banking favourite, which is down 5%.
However, the factors that make me avoid the stock haven't changed. Intesa offers a highly tempting, sector-leading 9% yield. But this is based on an 80% payout ratio, and maintaining such a high payout ratio in an environment where capital regulations are uncertain and the profit outlook is weak continues to look a risky strategy. There are plenty of other banking stocks yielding 7-8% on lower payouts where the margin of safety looks greater (e.g. BNP (OTCQX:BNPQF), ING (NYSE: ING) or ABN (OTCPK: ABNRY)), and for income-seeking investors, these are the stocks I would focus my attention on.
Intesa is a quality bank doing all the right things
I should start by saying I hold Intesa in high regard. P/TNAV has slipped since I last wrote but on 0.75x and 9x 2019 PE, Intesa still trades at a deserved premium to many of its European banking peers. This reflects its status as a quality name in a sector with all too few of them. In particular, the company's ability to control costs has been a substantial benefit in what has been an exceptionally challenging revenue environment for the industry in recent years. Cost:income was 49% in 2Q, a level bettered by only two other banks in... Read more