Comparing Investment Opportunities: Bank of America vs. New York Community Bancorp Turnaround

Don't Waste Your Time Waiting for New York Community Bancorp's Turnaround

New York Community Bancorp got the cash infusion it needed to enact a turnaround, but it will be a years-long process. Don't wait. To simplify the story, New York Community Bancorp (NYSE: NYCB) got too big, too fast just as interest rate increases made operating a bank more complicated. It ended up needing a huge cash infusion, and it massively reduced its dividend to just a penny per share per quarter, all in support of a broader turnaround effort. Now that it offers little in the way of dividend income and is facing a multi-year turnaround, investors would be better served looking at U.S. giants like Bank of America (NYSE: BAC) and Citigroup (NYSE: C), or high-yield Canadian giants Toronto-Dominion Bank (NYSE: TD) and Bank of Nova Scotia (NYSE: BNS), which are both in the midst their own turnarounds. Here's why.

Buy these U.S. giants

• Bank of America is one of the largest banks in the United States, with revenue of $25.8 billion in the first quarter of 2024 alone. Despite its size, it continues to grow across all four of its business divisions -- consumer banking, global banking, global wealth and investment management, and global markets. And it has a Tier 1 Capital Ratio, a measure of how well a bank is prepared for adversity, of 11.8%, which is 184 basis points above the regulatory requirement (higher percentages are better). It has increased its dividend annually for a decade, and the dividend yield is currently 2.5% or so.
• Citigroup, one of Bank of America's closest rivals. Citigroup's first quarter 2024 revenue totaled up to $21.1 billion. Its five divisions -- services, markets, banking, wealth, and U.S. personal banking -- were a mix of positives and negatives, but the bank's simplification plans appear to be on track. The backstop here, meanwhile, is very strong, with a Tier 1 ratio of 13.5%, even better than the figure for Bank of America. The dividend was increased in August of 2023 after a few years of stagnation, but the yield is a bit more compelling at nearly 3.5%. If you are willing to take just a slightly increased level of risk for a notable jump in yield, Citigroup could be for you.

Jumping into turnaround territory

If the story that attracted you to New York Community Bancorp was the turnaround, you have to understand that, after the dividend cut, you aren't getting paid much to wait for the company overhaul. And getting the bank back on track is likely to be a multi-year process, with management talking about the end of 2026 as a target. You could be waiting a fair amount of time for the investment to work out. If you look to Canada, however, you can find a couple of turnaround stories that also offer high yields.

Bank of Nova Scotia, or Scotiabank, is one of the largest banks in Canada, and it has a material business in South America. That latter operation is being rejiggered to help improve the bank's performance relative to peers. It is going to exit weaker markets and focus on the ones with the best prospects, such as Mexico. There's no question that the bank isn't hitting on all cylinders right now, but with a well supported dividend yield of around 6.7% you are at least getting paid well while you wait for management to get back on track. Notably, Scotiabank wasn't forced to cut its dividend during the Great Recession like so many of its U.S. counterparts. And the bank's Tier 1 Capital ratio was a very strong 14.8% at the end of the fiscal first quarter.

Toronto-Dominion Bank's business hit a roadblock in 2023 as U.S. regulators blocked an acquisition because of concerns over the bank's money laundering controls. That's going to result in a fine, and will likely require the company to earn back regulator trust before it can buy another U.S. bank. Although the company's mature Canadian business remains a strong foundation, its expansion efforts in the United States will be slower than some investors might like. The bank should muddle through, but it could be a few years before it is back on track. With a 5% dividend yield, though, you are getting paid well to stick around. And like Scotiabank, TD Bank didn't cut its dividend during the Great Recession. Its Tier 1 ratio, meanwhile, is a very solid 13.9%.

New York Community Bancorp isn't paying you for the risk

The big picture here is that New York Community Bancorp's dividend cut has left investors with little to hang their hats on as they try to justify sticking around through a multi-year turnaround effort. You can get better yields and own larger, stronger banks if you buy U.S. giants Bank of America and Citigroup. That said, if you like turnarounds, Canada's Scotiabank and TD Bank both have generous yields, strong core businesses, and high likelihoods of muddling through what ails them without too much difficulty. Simply put, you can do better than New York Community Bancorp.