The results of Federal Reserve stress tests on U.S.Â banks should trigger a flurry of dividend hikes and share repurchases later this week.
Financial institutions most likely to see the largest dividend increases includeÂ JPMorgan Chase (JPM), Metlife (MET), PNC Financial (PNC), U.S. Bancorp (USB) and Wells Fargo (WFC), write Keefe, Bruyette & Woods analysts David Konrad, Andrew Del Medico and Brian Finneran. Goldman Sachs Group (GS) also is well positioned in light of the news, which KBW expects on Thursday.
“Given the uncertainty in Europe and potential spillover to U.S. markets, we believe one of the Fed’s goals is to limit capital leaving the banking system … The release of last yearÂs stress test proved to be anticlimactic for the stock prices. Although many banks increased their dividends, many of the yields fell short of 2%. In our view, this yearÂs approved capital plans may result in relatively attractive dividend yields.”
Other predictions after the Fed reveals results, according to KBW:
- Fifth Third (FITB), Huntington Bancshares (HBAN), JPMorgan and M&T Bank (MTB) are “likely to have dividend yields above 3%.”
- All eyes will be on Citigroup (C) results, which is “on track to generate excess capital within a two to three year time frame.”
- Keycorp (KEY) is likely to see a 65% payout ratio approved with its strong balance sheet, which is short of market expectations.
- SunTrust (STI) could surprise the market with higher-than-expected share repurchases.
Thirteen of the 19 largest U.S. lenders will pay out $3.79 billion in extra dividends this year and buy back $5.52 billion in stock, according to six analyst estimates reported in this Bloomberg story on the Fed stress tests.