As I mentioned last week, with danger lurking among energy master limited partnerships (MLPs) and real estate, income investors are increasingly looking elsewhere. And that includes a tried-and-true dividend generator - the banking sector.

But beware: Not all of them represent good income investments.

Large banks are now over-regulated and could be caught up in an international crisis.

Meanwhile, small- and medium-sized banks face some headwinds.

For example, credit scoring, risk management, asset and liability management, and other banking essentials all require a substantial investment in IT systems and the people who manage them. And those investments aren’t cheap, putting a dent in smaller banks’ smaller profits.

Furthermore, local banks are subject to the vagaries of that particular locality. The bankruptcy of a single large employer can cause credit difficulties among that employer’s staff, as well as its suppliers and service providers.

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