Dividend Hikes and Buybacks Expected After Bank Stress Tests

Perhaps the biggest beneficiaries of the dividend hikes will be Citigroup Inc. (NYSE: C) and Bank of America Corp. (NYSE: BAC). Citigroup shares are still about 10% shy of their 52-week highs, and the dividend of $0.01 is embarrassingly low at under 0.1%. Citigroup shares were at $47 last Friday, and they are now above $50. Bank of America is almost back up to $18, a multiyear high, and within striking distance of its post-recession high. Bank of America has been forced to keep its dividend muted as well, at a paltry 0.2%.

Look for both Citigroup and Bank of America to become larger dividend payers again, and/or have share buyback announcements too. If not, you know what happens when investors are disappointed.

J.P. Morgan Chase & Co. (NYSE: JPM) is challenging new highs as well. After a 2.2% gain in mid-Thursday trading, its stock is at $59.62, and the consensus price target is closer to $65.50. Jamie Dimon’s bank pays a 2.6% yield, and the bank is widely believed to be past its problems with the London Whale and other trading operations. The bank also appears to be closer to the end of government and mortgage settlements.

Wells Fargo & Co. (NYSE: WFC) also hit a new high on Thursday, at $49.29, which now exceeds its consensus price target of $49.20 from Thomson Reuters. Wells Fargo has the least exposure to the new regulations as far as it having to change its businesses. Wells Fargo’s dividend of 2.5% is due for another raise as well. The last dividend hike went from $0.25 to $0.30, and if the bank raises the dividend to $0.35 per share then it will be a peak dividend even from the $0.34 that was paid before the Great Recession.

Investors are betting on more dividend hikes and capital returns from other regional and super-regional banks. Regions Financial Corp. (NYSE: RF) has only a 1.1% dividend yield, but shares hit a new multiyear high of $11.37. This is far from the only regional bank that could use a higher payout, as its $0.03 per quarter dividend is literally less than one-tenth of what it used to be.