Banking stocks have been in the limelight for quite some time now. An improving business environment, rising interest rates and stabilizing economy have benefited the banks’ financial performance. Apart from these, renewed optimism over lesser regulations with the passage of the Financial Choice Act bodes well for the banks.

While all these factors are enough for impress investors, a decent dividend yield adds to the banking stocks’ appeal.

We all know that the Federal Reserve will be releasing its annual stress test results for big banks later this week, while approval of their capital plans for the next four quarters will be out by this month end. A total of 34 banks are part of this annual exercise this year, which examines banks under hypothetical adverse scenarios.

The annual test helps in understanding how banks will fare under adverse scenarios and accordingly the Fed approves their individual capital plans. This year, the stress test is expected to be less difficult for banks. Also, chances of big rise in dividends are high as these banks seem to hold sufficient capital.

While it is wise to stick to big known banks for making investments, there are several hidden gems in terms of better dividend yields. Also, with the above-mentioned positive economic and macro developments, these banks are expected to witness a rise in earnings in the quarters ahead. So, with additional capital at disposal, these banks are expected to meaningfully deploy capital and reward shareholders with dividend hikes and share repurchase programs.

Picking the Promising Banks

While you wait for the fate of Wall Street biggies in terms of dividend increase, there are a few smaller banks that already pay decent dividends. So for the time being, you can invest in these and reap significant returns.

For shortlisting the stocks from the vast universe of banking, we have taken the help of the Zacks Stock Screener. We have chosen stocks that have dividend yield of 2% of more.

To further filter the list, we selected stocks that have a Value Score of ‘A’ or ‘B.’ Also, these stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Here are the three banks that fulfilled the criteria:

Peoples Bancorp Inc. (PEBO Quick QuotePEBO - Free Report) is based in Marietta, OH and provides commercial and retail banking products and services.

Zacks Rank: #2
Dividend Yield: 2.43%
Value Score: B

Cullen/Frost Bankers, Inc. (CFR Quick QuoteCFR - Free Report) , based in San Antonio, TX, provides a broad array of general commercial and consumer banking as well as other products and services.

Zacks Rank: #2
Dividend Yield: 2.36%
Value Score: B

Based in Madison, WI, First Business Financial Services, Inc. (FBIZ Quick QuoteFBIZ - Free Report) provides commercial banking products and services.

Zacks Rank: #2
Dividend Yield: 2.17%
Value Score: B

Looking for Stocks with Skyrocketing Upside?  

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.   

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>