Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Bank Stress Tests Could Lead to Higher Dividends for Investors

Companies / Banking Stocks Mar 08, 2013 - 12:43 PM GMT

By: Money_Morning

Companies

Jeff Uscher writes: The U.S. Federal Reserve will announce results of its annual bank stress tests Thursday - which means higher dividend payouts could be on the way from a handful of U.S. banks.

The bank stress tests are designed to assess if big U.S. financial institutions can weather a major economic storm.


Then, on March 14, the Fed will announce whether or not it approves of the banks' plans to distribute profits to shareholders.

The two-stage announcement process was put into place to give banks a chance to amend their payout plans, depending upon the results of the stress tests, before announcing them publicly. The Fed must approve any plans for the nation's biggest banks to distribute profits to shareholders after assessing the impact of those distributions on the banks' capital.

"You've gone from a few years ago, when the industry as a whole didn't have enough capital, to the point where in the not- too-distant future, it's going to have too much," Jason Goldberg, a New York-based banking analyst at Barclays Plc, told Bloomberg News. "The Fed's endorsement is "a Good Housekeeping seal of approval.'"

How the Bank Stress Tests Work
Since 2011, the bank stress tests have used the Comprehensive Capital Analysis and Review approach to determine if banks have sufficient capital to handle a major economic downturn.

This year, two hypothetical scenarios were used. The first assumed that the economy contracted for six consecutive quarters and that inflation and interest rates rose sharply. The second scenario assumed that unemployment rose to 12% and that the stock market fell by 52%.

Both scenarios assumed dividend payouts would remain unchanged and that there would be no share buybacks.

In 2012, 15 of the 19 biggest banks passed the stress test and were given the green light to increase payouts to shareholders. Notable among the banks that failed the stress test was Citigroup Inc. (NYSE: C), which was one of the reasons for the 2012 ouster of former CEO Vikram Pandit.

Bank analysts expect all 19 banks to pass the stress test this year so that raises the question of how much shareholders can expect payouts to increase.

Higher Dividends, Bigger Buybacks
Analysts expect Citigroup to be able to increase its quarterly dividend to between 10 cents and 20 cents from the current 1 cent and to repurchase $1.17 billion worth of shares through March 2014.

Bank of America Corp. (NYSE: BAC) had its payout plans rejected in 2011 and left its quarterly dividend unchanged at 1 cent in 2012. Analysts expect BAC will be able to pay out between 10 cents and 30 cents to shareholders this year through a combination of dividends and share buybacks.

Looking ahead to 2014, if BAC's earnings increase as expected, the quarterly dividend could be as high as 9 cents, giving the stock a yield of 3.0% at Wednesday's share price.

Another analyst favorite is Wells Fargo & Co (NYSE: WFC). WFC currently pays a 25-cent quarterly dividend for a yield of 2.78%. WFC has increased its quarterly earnings for 12 consecutive quarters and is expected to continue to improve earnings in 2013.

Today's 25-cent quarterly dividend represents only a 27% payout ratio based on consensus estimates for 2013 earnings. Management has signaled that it wants to increase its payout to shareholders to more than 50%, which would make a quarterly dividend of 50 cents by the end of this year entirely feasible, though some of the payout is likely to come in the form of share buybacks.

Among the more well-capitalized banks, WFC's share price has lagged competitors such as Goldman Sachs Group Inc. (NYSE: GS) and JPMorgan Chase & Co. (NYSE: JPM). Although both of these banks are expected to pass their stress tests with flying colors and to increase shareholder payouts, WFC may offer the best combination of yield and potential for capital gains during 2013.

Most analysts expect bank share volatility to pick up during the week between Thursday's stress test announcement and the approval/disapproval of planned shareholder payouts on March 14.

This is the first time that the Fed will execute its bank stress test announcement in two stages. It remains to be seen if this will have a calming effect on the market or if it will increase volatility.

Source :http://moneymorning.com/2013/03/06/dumping-apple-stock-for-google-how-investors-could-get-burned/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in