The Banking Sector is Growing its Dividends Fast

The U.S. banking sector has come a long way in the five years since the Great Recession.
Bank profits have almost fully recovered from the financial crisis. Net income among U.S. banks reached a record $154.7 billion in 2013. The six largest U.S. banks reported their highest profits since 2006. Meanwhile, the number of “problem” institutions continues to dwindle, down to 467 from 515 in the fourth quarter of 2013.
Part of the reason for the recovery is that banks are charging off fewer uncollectible loans, as the percentage of noncurrent loans and leases recently fell to its lowest level since 2008. Still, the improving profits are encouraging considering the depths U.S. banks sank to just five years ago.
They’re also good for shareholders.
Most banks reduced their dividend payouts drastically after the recession. Bank of America (NYSE: BAC) all but did away with its quarterly dividend, slashing it from 64 cents to a penny in early 2009. JPMorgan’s (NYSE: JPM) dividend went from 38 cents to five cents. Wells Fargo’s (NYSE: WFC) went from 34 cents to five cents. Citigroup’s (NYSE: C) was reduced from 32 cents to a penny.
You get the picture.
Now that profits have returned to pre-recession levels, banks are starting to increase their dividends again.
A number of large U.S. banks are suddenly among the fastest dividend growers in the S&P 500. According to Bloomberg, of the 25 S&P companies projected to put forth the fastest dividend growth over the next three years, eight of them are banks. Granted, it’s a lot easier for a company to grow its dividend by a high percentage when the payout is so low. That said, the fact that so many large U.S. banks across the board are doing it is a positive sign.
-Wells Fargo’s dividend, stuck at five cents for two years after the recession, is now up to 35 cents a share – good for a respectable 2.7% yield.
-JPMorgan Chase’s dividend, also stuck at five cents for two years, is now all the way up to 40 cents – a yield of 2.8%.
Goldman Sachs (NYSE: GS) has increased its dividend by 57% in the last two years.
-Citigroup is projected to increase its puny one-cent dividend by 217% in the next three years.
Morgan Stanley (NYSE: MS) is projected to grow its equally puny one-cent dividend by 17% in the next three years.
Some smaller banks are upping their dividends at an even faster clip. Regions Financial is projected to increase its dividend by 55%. SunTrust Banks is set to up its dividend by 32%. And Huntington Bancshares is predicted to improve its dividend by 18%.
The yields aren’t particularly impressive. The average yield among the Financial Select SPDR ETF (XLF), which is heavily weighted toward U.S. banks, is a mere 1.5%. That should soon change given how quickly banks are ramping up their dividends.
As bank profits continue to recover, look for bank stocks to reward shareholders more generously. For now, the dividend growth alone in the banking sector is at least worth your attention as an income investor.

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