Hey there, folks! Big buzz in the air about New York Community Bancorp (NYSE: NYCB) – they've recently chopped their dividend. If you're thinking of diving into this bank's shares, that's the headline you've got to know. But hang tight; there's more to this tale than just a surprising cut in dividends that the management spilled when they shared their Q4 2023 earnings. Let me break it down with three quick and important bits you should be aware of today.
The dividend cut:
Okay, so you can't ignore the elephant in the room – that eye-catching dividend cut by New York Community Bancorp. Even though their Q4 2024 earnings headline screamed, "NEW YORK COMMUNITY BANCORP, INC. REPORTS RECORD RESULTS FOR 2023," with the capitalization on overdrive, the reality is they axed the dividend from $0.17 per share per quarter to just $0.05. That's a whopping 70% cut, which feels a bit weird given their record-breaking 2023. But here's the kicker – bad news usually gets the silent treatment, right? So, if you're eyeing NYCB today, that slashed dividend is a neon sign saying, "Hey, things might not be as rosy as we're saying." Wall Street got the memo, too; the stock nosedived on news of the cut.
Getting the house in order:
So, why did they ax the dividend? To buff up New York Community Bancorp's capital, that's why. Essentially, they're doing some spring cleaning on their balance sheet. It's not necessarily a bad move, but shareholders might raise an eyebrow at how management is fast-tracking this at the expense of dividend lovers. There's a two-part answer (check point three for the sequel), and part one involves dealing with some not-so-friendly loans that suddenly appeared on their radar. A hefty jump in credit loss provision from $62 million in Q3 to a whopping $552 million in Q4 2023 screams trouble. It looks like NYCB had to cut the dividend to give their balance sheet some muscle.
And don't think this is a quick fix; it's not. So, if you're waiting for a speedy return to the old dividend glory days, think again. That hefty cut is setting a new, lower starting point, and any dividend growth is on a "hope it happens" basis in the future.
More regulatory scrutiny is on the way:
Hold on, there's more! In 2022, New York Community Bancorp swallowed another bank, and in 2023, it decided to gobble up bits of Signature Bank's loan portfolio. FYI, Signature Bank was one of the casualties of the 2023 bank runs. These deals made NYCB bigger in a jiffy. Now, big banks draw the watchful eyes of regulators, and that means NYCB has to beef up its capital structure. CEO Thomas Cangemi summed it up nicely, saying, "we added on-balance sheet liquidity as we prepare for the enhanced prudential standards that apply to banks with $100 billion or more in total assets." Growth is cool, but this growth spurt has its costs, especially for the dividend-hungry investors. The troubled loans just made the situation messier.
Best to Hold Your Horses:
Given the surprise dividend cut, the loan woes, and the increased scrutiny, it's probably a good idea for most investors to chill for now. New York Community Bancorp is in a bit of a makeover mode, and we're not sure how long it'll take or how bad things might get before they're out of the woods. If you're looking for a sign to reconsider, it might be when dividends start climbing again, but even then, proceed with caution. The future of this bank might be a whole different ball game compared to its past as it steps into a more competitive league.
Should you toss $1,000 into New York Community Bancorp right now?
Before you take the plunge, here's a thought: The Motley Fool Stock Advisor squad just dished out their top 10 stock picks, and NYCB didn't make the cut. The chosen 10 are expected to do big things in the coming years, so you might want to give those a gander before hitching your wagon to NYCB. Happy investing, folks.