The New Dividend Stocks Are Bank Stocks?

Banks should benefit from rising interest rates—and some say select big banks are a good bet for 2016 stock gains—but there could be another reason to invest in the sector this year: Dividends. Post financial crisis, banks had to prove their way back to paying dividends with approval from the government, which in many cases held these payments well below pre-crisis levels. Yet it’s worth remembering what those levels were like: Banks and other financial provided nearly 30% of the S&P 500’s dividends in 2007, and could do so again, writes The Wall Street Journal’s John Carney:

"Financials have regained their lead position, however. As of June 30, 2015, they produced 15.5% of the S&P’s dividends, higher than any other sector. In the third quarter of this year, financials posted the largest year-over-year dividend-per-share growth, according to FactSet. What may be even more important, however, is the unique safety of bank dividends. Every year, the biggest U.S. banks have their capital planning scrutinized by regulators at the Federal Reserve and tested against dire economic and financial conditions. Under these stress tests, banks are forced to assume that they don’t cut their dividends even as profits deteriorate and credit losses mount."

Source: Baron's

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