After The Stress Test, Are Financials Dividend Growth Stocks?

29 out of 30 isn't too shabby. The Federal Reserve released the results for its latest stress test, and 29 out of America's largest 30 banks met their required capital requirements. Only Zions Bancorporation (ZION) - a relatively small player - failed to make the cut. Credit card issuer Discover Financial (DFS) received a clean bill of health and responded much as its shareholders might have hoped - by raising its quarterly dividend by 4 cents to 24 cents per share.

The Fed has been pretty good at playing its cards close to the vest. But based on the results of the stress test, we can handicap the odds that they will allow a dividend hike on a bank-by-bank basis. Let's use Bank of America (BAC) as an example. The Fed found that BAC's Tier 1 leverage ratio would fall to as low as 4.6 percent under the "severely adverse" scenario, only slightly higher than the regulatory minimum of 4%. Still, with "excess" capital of about $13 billion, the consensus view is that BAC will raise its quarterly payout from one cent per share to ten cents. Citigroup (C), which, like BAC, currently pays out 1 cent per share quarterly, is expected to raise its dividend to about 5 cents. At current prices, that would give it a yield of about 0.40%. JPMorgan Chase's (JPM) annual dividend is expected to rise from $1.52 per share to $1.67 per share, giving it a yield of about 2.8%.

Source: Seeking Alpha

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