Today Is the Day. Will Bank of America and Citigroup Finally Raise Their Dividends?

Investors will learn at 4:00 p.m. EDT whether or not Bank of America and Citigroup have been given the approval to increase their quarterly payouts.

Mar 26, 2014 at 11:16AM


Today is the day that investors in Bank of America (NYSE:BAC) and Citigroup (NYSE:C) have been waiting for. At 4:00 p.m. EDT, the Federal Reserve will announce which of the nation's largest banks will be allowed to increase their dividends and/or share buybacks.

Analysts and commentators will be paying particular attention to Bank of America and Citigroup, as both banks dropped their quarterly distributions to a nominal $0.01 per share during the financial crisis and have yet to up the ante (for clarity's sake, Citigroup currently pays $0.04 per share following a 1-for-10 reverse stock spilt in 2011).

The consensus is clearly in favor of higher payouts. A recent analysis by The Wall Street Journal found that the average expectation among analysts polled by Thomson Reuters is for a 1,220% increase in Citigroup's payout and a 406% boost to Bank of America's.

The rationale for the confidence is twofold. First, both banks have increased their capital bases considerably over the last few years. At present, Citigroup's Tier 1 common capital ratio is 10.5%. This is more than double the regulatory minimum of 5%. Meanwhile, Bank of America's came in at 9.96%.

And second, the two lenders have increased both the size and consistency of their earnings. Notably, this was one of the principal reasons that Bank of America's CEO Brian Moynihan gave for not requesting a dividend hike in last year's Comprehensive Capital Analysis and Review.

There's no question that these are laudable accomplishments. At the same time, however, both of these lenders fared poorly in the 2014 stress test, the results of which were released last week. Under the Fed's "severely adverse" economic scenario, Bank of America's Tier 1 common capital ratio dropped to 6%, while Citigroup's fell to 7%. Aside from Utah-based Zions Bancorporation and global banking giant HSBC, these were the worst performances among the nation's largest traditional banks.

It's for this reason that I'm much more circumspect about the prospect of dividend boosts at Bank of America and Citigroup. In the former's case, I've been clear that I believe a larger quarterly distribution is in order, though I question whether Moynihan would have requested for a fourfold increase. And in the latter's case, the evidence suggests to me that it's leaning more toward buybacks.

Of course, I could be wrong on both counts. But either way, we'll know today at 4:00 p.m. EDT.

The biggest change you never saw coming
Do you hate your bank? If you're like most Americans, chances are good that you answered yes to that question. While that's not great news for consumers, it certainly creates opportunity for savvy investors. That's because there's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banking model. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. To learn about about this company, click here to access our new special free report.

John Maxfield owns shares of Bank of America. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America and Citigroup. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information