For Big Banks, Dividends Set to Make a Comeback

Banks will start paying dividends againAs the bank earnings season begins Friday with the first report from JPMorgan Chase (JPM), investors have something new to salivate over: the prospect of long-absent dividends.

JPMorgan CEO Jamie Dimon became the latest to raise this enticing prospect when he said his bank could pay out up to a dollar in dividends per share, likely in the second quarter, once the Federal Reserve gives its approval following a stress test for the nation's largest 17 banks.

"We will be adequately capitalized even in a stressed situation, so when they finish these tests, we're hopeful we'll be allowed to go back to paying normal dividends," Dimon told investors at the bank's health care conference this week in San Francisco.

"In Violent Agreement"

And Morgan isn't alone. Wells Fargo (WFC) CEO John Stumpf says he also wants to start paying dividends and buying back shares when the stress tests are completed. "It's high time that we provide a return on your investment," Stumpf said at a Goldman Sachs financial services conference last month. "I am in violent agreement that it is time we get back to a quote unquote more normal basis."

Morgan is the current darling of financial analysts, chosen as a top pick by many Wall Street banks. Mike Mayo, analyst at Credit Agricole, says Morgan "has gained market share in each of its six businesses, maintained higher capital and better technology and shown more consistency with strategy and management."

The entire financial sector has improved in recent weeks, with the S&P Bank Index ($BIX) up 18.6% since Oct. 15.

More M&A, Too

"We believe 2011 will continue to be a strong year for bank stocks due to the continued recovery in earnings, improved credit metics and stronger capital levels," says Gerard Cassidy, banking analyst at RBC Capital Markets. "These trends will likely lead to increased merger and acquisition activity and increased dividends."

One factor helping earnings this quarter is that the banks are reducing their loss reserve funds, which they set aside to tide them over the financial crisis. Morgan, for example, is expected to report a profit of $4.2 billion in the fourth quarter, according to a survey of analysts by Bloomberg. Of that amount, which equals $1 per share, about 40% came from taking money from loss reserves.

Citibank (C) is also expected to benefit from this maneuver, with analysts predicting it could proved a 20% or better boost for 2012 earnings. Bank of America (BAC) could benefit to the tune of 5% of its 2012 earnings.

Analysts also believe that credit quality improvement should be a common theme in the results, with nonperforming loans lower than in previous quarters. Net interest margins are also improving, thanks to a steepening yield curve and the availability of low-cost funding. With the return of dividends, it all makes for an enticing package for investors.

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socialeconomics1

I rode C from $0.50 a share to $5 a share for a 10 bagger and now I am going to ride bank of Ireland and do the same thing... Europe is a few years behind America, and an American recovery means a European recovery since they are all invested heavily in America....

January 15 2011 at 11:46 PM Report abuse rate up rate down Reply
BUFFALO

I am not a stock holder but I am a depositor
and if there paying dividends that they should think about
paying some intrest to there customers first!!

January 15 2011 at 10:50 AM Report abuse +1 rate up rate down Reply
2 replies to BUFFALO's comment
socialeconomics1

go back to 5th grade Buffalo... and only morons do business with local banks... Try a online broker with an account with check writing privleges, that pays 2.2% interest for idle money, and allows you to invest in stocks and mutual funds with margin leverage.... Geez the common man is uneducated.... As long as you people continue to be a pawn of your local bank, they will continue to live well off your hard work... DUH !!

January 15 2011 at 11:43 PM Report abuse rate up rate down Reply
socialeconomics1

oh, and Credit Unions do pay a dividend

January 15 2011 at 11:43 PM Report abuse rate up rate down Reply
aajlawyer

Glad the banks are finally going to start paying dividends again.

January 15 2011 at 10:35 AM Report abuse +1 rate up rate down Reply
Iselin007

Their limiting your speech just with the reduced links can't you tell?

January 15 2011 at 7:47 AM Report abuse rate up rate down Reply
Iselin007

The banks will collapse again an so on. They are living a lie so bye-bye!

January 15 2011 at 7:30 AM Report abuse +1 rate up rate down Reply
bdyftns

How about paying back all the stimulus money they've gotten over the last 6 years first.....with interest.

January 15 2011 at 6:40 AM Report abuse -1 rate up rate down Reply
1 reply to bdyftns's comment
Iselin007

The money has gone into private accounts for their escape

January 15 2011 at 7:32 AM Report abuse rate up rate down Reply
ronsjigslures123

The banks are giving dividends because all the rich wall street investors are connected to the banks in some way, all those rich shakers and movers are controlling the USA ecconomy right now and know its inflated and about to go beely up like no other time in history, people will flock to these banks to try to save there money because there will be no stocks out there that will be worth much when this happens, the banks will AGAIN make billions off the usa people, there the biggest con artists in the USA. The only other investment MIGHT be silver, and few commoditys where people shove there cash, banks allways benifit on disasters to our ecconomy, they always come out smelling like a rose, and this time they will do it again.

January 15 2011 at 2:27 AM Report abuse rate up rate down Reply
ronsjigslures123

If you have a 401k that is doing OK right now better think about it, soon those 401k,s have a good chance of dropping to a alltime low and people will loose everything the gained in the past 2 years. Get ready for the bottom to fall out of the USA ecconomy big time this time, and the banks are ready to cash in on all of it.

January 15 2011 at 2:18 AM Report abuse +1 rate up rate down Reply
ronsjigslures123

If 5 bucks a gal hits this dividends from the banks will be a huge bust, the masses will not have as much money in savings, and bussiness will not be able to borrow money to keep a Failing bussiness afloat, defalts on homes will raise 30% and default in commercial realastate will defaul as well, when this happens the banks are thinking they will cash in on the stock buyers, because all rest of the stocks will be looking really bad. Banks are takers they give nothing to no one, if you invest in these you will be cutting your own throghts, because for banks to pay dividends out they are screwing the masses some how, they NEVER spend there own money. When you see banks paying this stuff out this is a HUGE indicator that things are ABOUT to go really wrong soon, because the crooks they are the thrive on when the USA people are in a terrable place.

January 15 2011 at 2:14 AM Report abuse +1 rate up rate down Reply
ronsjigslures123

You won,t have to worry about anyone giving dividends to anyone if the gas hits $5 a gal. in 2011 .. Most bussiness will file for bankruptsy, the post office will close its doors, and food and other things the American people need will go up another 25% to off set the cost of fuel in all the trucks and planes. For short it will be the end of the USA and its people. The post office alone will have to pay out a billion in extra gas cost alone for all the trucks and planes, all the package carring companys will have to raise there prices, so small companys will go out of bussiness on package shipping cost, then the trucking copanys will place a surcharge on the millions of big trucks that carry food to the grocery store chains, like they did before and that will be passed on to the consumer in higher prices, farmers will have to hike prices because of fuel costs, and the FALL OF THE DOMINNO LINE WILL START ... the 5 buck a gal at this point in time is like that first dommino in that line, when it hits it and it has a 80% it will be like knocking that FIRST donno down and inturn nocking down ALL THE REST.

January 15 2011 at 2:00 AM Report abuse +2 rate up rate down Reply