Behold! The Fed Raises the Curtain on Major Bank Dividends This Week

The Fed puts its stamp of approval -- or rejection -- on the capital allocation plans of the majors on Wednesday, which will be far and away the financial sector event of the week. Investors in star lenders Wells Fargo, Bank of America, Citigroup, and JPMorgan Chase will particularly be impacted by the decisions.

Mar 24, 2014 at 11:00AM

A mere four initials will be the talk of the banking sector over the coming days: CCAR. That stands for Comprehensive Capital Analysis and Review, and it'll be released Wednesday afternoon as a part of the Federal Reserve's stress tests for the nation's major financials. Arguably, it's the critical component, as it contains the Fed's approvals (or denials) of the banks' capital allocation plans. 

And by capital allocation plans, we're basically talking dividends (share buybacks, after all, aren't as exciting). As all but one of the 30 tested financials passed the tests, according to the Fed's first set of results last week, at least a few should get the nod for hikes in their distributions. This bodes well for the sector's stocks on an overall basis. Among the big four lenders, Wells Fargo (NYSE:WFC) -- which, by the way, made its intentions very plain for a both a dividend and a share buyback raise  -- looks like it'll have the best chance of getting proposed increases green-lighted.

The prospects for other majors are cloudier, in spite of some good recent fundamentals. Both Citigroup (NYSE:C) and Bank of America (NYSE:BAC) conducted their own stress tests, estimating they would have significantly higher capital under the worst-case scenario than that projected by the Fed analysts. The regulator might read this as starry-eyed optimism, leading it to put the kibosh on any requested dividend or share buyback increase.   

On the subject of payouts and stress-tested banks, US Bancorp (NYSE:USB) is going ex-dividend on Thursday, the day after the CCAR is released. That quarterly distribution is $0.23 per share, for a yield of just over 2.1% on the company's most recent closing stock price.  By that day, of course, we'll know whether the bank has requested a raise in that amount, and whether the Fed assented to it. 

JPMorgan Chase (NYSE:JPM) will be a busy bank this week. In addition to adjusting to fallout from the CCAR, the company will reach (not too deeply) into its coffers to pay its latest legal settlement, a $218 million arrangement to resolve a class action suit over its alleged role in the activities of disgraced financier Bernie Madoff.

The firm will also probably speed-dial a headhunter or several, following media reports that its longtime chief executive for China investment banking, the wonderfully named Fang Fang, has decided to leave the company. Investment banking is a big component of the firm's operations and, needless to say, China is an enormous market, so this will surely have some impact. Morgan should try its best to find a qualified and well-connected replacement before the body gets too cold.

Outside of those developments, the market will also pay attention to the macro economy, which always affects the performance of the finance sector. Among the important numbers coming down the pike this week are new home sales for February (Tuesday), and the latest revision of Q4 GDP (Thursday).

Those figures are sandwiched in between Wednesday's CCAR release, which is almost certain to be the financial sector event of the week. Watch those dividends and share buybacks, folks, we're going to see some adjustments... hopefully of the upward variety.

You're going to love this bank
Even so many years after the crash, many investors remain terrified about investing in big banking stocks. They shouldn't be, particularly considering the performance of this stand-out lender. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's special report. It's free, so click here to access it now.

 

Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Bank of America and Wells Fargo, and owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers