It started last fall, when JPMorgan Chase (NYSE: JPM) said it planned on reinstating its dividend to 30%-40% of normalized earnings as soon as the Fed allowed it to.
Then Bank of America (NYSE: BAC) joined in. In December, the bank said it also wants to reinstate its dividend to 30% of earnings, once the Fed gives the green light.
Citigroup (NYSE: C) wasn't as specific, but said this week that it wants to resume paying a dividend next year.
Yesterday was Wells Fargo's (NYSE: WFC) turn. CEO John Stumpf noted at an investor conference that he plans to devote 30% of his bank's earnings to a dividend.
Using the 30% payout ratio that seems so popular, it's simple math from here. Here's what kind of yields we're talking about:
|
Bank |
Forward EPS Estimate |
Dividend at 30% of EPS |
Yield at 30% Payout of EPS Estimate |
|---|---|---|---|
| JPMorgan Chase |
$4.77 |
$1.43 |
3.14% |
| Bank of America |
$1.31 |
$0.39 |
2.76% |
| Citigroup |
$0.43 |
$0.13 |
2.83% |
| Wells Fargo |
$2.86 |
$0.86 |
2.68% |
Source: Capital IQ, a division of Standard & Poor's.
In short, these banks would offer something in the neighborhood of 3% yields. Not as much as banks typically yielded before the financial crisis, but still above the average S&P 500 company's yield.
This is all fine and well for the big banks. They've rebuilt a tremendous amount of capital over the past two years, and they're probably in a reasonable position to return some of it to shareholders as earnings pile up.
Owning common stock in these companies would still make me nervous -- there's still just too much insanity and funny business left over from the bubble years. Still, as a rule of thumb, I'd never bet against any company with a lobbyist or a strong dividend. Banks are knee-deep in the former, and about to reclaim the latter.
- Add JPMorgan Chase to My Watchlist.
- Add Bank of America to My Watchlist.
- Add Citigroup to My Watchlist.
- Add Wells Fargo to My Watchlist.
