Everything You Need To Know About Banks With Soaring Dividend Payouts

Aug 25, 2022 By Triston Martin

Another driver of larger dividend distributions is the anticipated rise in profits and cash flow resulting from the implementation of tax reform. JPMorgan Chase & Co. (JPM) analysts anticipate that average bank dividend hikes will be 38% in 2018 and 26% in 2019, for a total average rise of 74% over the next two years. Mosby's forecasts are somewhat more modest, coming in at 25%, 20%, and 50%, respectively. During the current selloff, bank stocks performed far better than the market averages, which is a nice extra benefit.

10 Banks to Watch

According to research conducted by JPMorgan Chase & Co. and published in Barron's, ten of the largest banks seem particularly appealing to investors focused on dividends. According to JPMorgan Chase, the following companies have the following year-to-date price changes through February 14, the following current dividend yields as of February 14, and the following anticipated cumulative dividend growth through 2019:

  1. Bank of America Corporation (BAC): Year-to-Date Gain of 8.4%, Yield of 1.5%, and Dividend Growth of 126% through 2019
  2. BB&T Corporation (BBT): Year-to-Date Gain of 10.1%, Yield of 2.4%, and Dividend Growth of 38% Through 2019
  3. Citigroup Inc. (C): year-to-date gain of 3.1%; dividend yield of 1.7%; projected increase of 158% through 2019
  4. Citizens Financial Group Inc. (CFG): year-to-date gain of 9.2%; Yield of 1.9%; projected increase in a dividend payout of 94% through 2019
  5. Fifth Third Bancorp (FITB): Year-to-Date Gain of 9.6%; Current Dividend Yield of 1.9%; Future Dividend Growth of 87% through 2019
  6. PNC Financial Services Group Inc. (PNC): year-to-date gain of 9.7%; dividend yield of 1.9%; dividend growth potential of 73% through 2019
  7. Regions Financial Corp. (RF): year-to-date gain of 12.1 points; Yield of 1.9%; dividend increase of 110% through 2019
  8. SunTrust Banks Inc. (STI) has a year-to-date gain of 8.5%, a yield of 2.3%, and a dividend growth of 71% through 2019.
  9. U.S. Bancorp (USB): Year-to-Date Gain of 3.2%; Dividend Yield of 2.2%; Dividend Growth of 41% Through 2019
  10. Wells Fargo & Co. (WFC): year-to-date loss of 1.9%; Yield of 2.6%; projected increase in dividends of 22.0% through 2019

Relaxed Regulation

According to what Mosby told Barron, regulators previously mandated that financial institutions maintain dividend payout levels of no more than thirty percent. These ratios are on the rise due to the industry's improvement, and the authorities' authorization of significant increases in the amount of money returned to shareholders. According to the forecasts made by JPMorgan Chase, the median payout ratio for the 10 banks mentioned above will be around 40% by the year 2019.

Not only have banks been increasing their dividends, but they have also been buying back their shares at a more aggressive pace. According to Mosby, the final consequence is that large-cap banks now have around 5% fewer shares outstanding than they had two years ago. This trend is only accelerating with the permission of regulatory agencies.

Selected Stories

During the financial crisis, Bank of America was one of the banks experiencing the most difficulties, but the company's earnings are on the rise these days. JPMorgan anticipates that earnings per share will climb by 54% in 2018, followed by an additional 13% increase in 2019, for a total increase of 74%. That ought to offer sufficient coverage for future dividend increases. According to Barron, JPMorgan believes that the Bank of America could profit from reduced costs and better sensitivity to changes in interest rates than many of its competitors.

Citizens Financial has been working hard to improve many important KPIs. According to JPMorgan and Barron, the return on equity has been upward. On the other hand, Wells Fargo is still being hampered by the controversies it has had in the past and seeing sluggish growth in its income. These controversies include the establishment of fraudulent customer accounts, the illegal placement of vehicle insurance policies on clients without their consent, and the charging of excessive interest rates to members of the armed forces who obtained VA loans. HousingWire's total cost of these incidents, including paying penalties and reparations, has reached at least $373 million.

'Safer Than the Market'

This is the title of another piece that Barron's published on bank stocks. According to Chris Verrone, a partner at the institutional trading company Strategas Investment Partners, although the S&P 500 had a correction of 10.2% between January 26 and February 8, bank equities only experienced a decline of 8.9% during this period. According to Verrone, the performance of the SPDR S&P Bank ETF (KBE) was even better, with a loss of just 7.1%.

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