The first round of this year's stress tests are now over. With all 34 of the banks passing it, investors could soon learn whether the nation's biggest banks will increase the amount of capital they return to shareholders by way of dividends and share buybacks.
News on this front could come out as soon as Wednesday, when the Federal Reserve releases the results from the second round of the stress tests, the Comprehensive Capital Analysis and Review. It's in this stage that banks seek regulatory approval to accelerate the rate at which they return capital to shareholders.
Three regional banks that are positioned to do so are BB&T (TFC -0.13%), PNC Financial (PNC 0.29%), and U.S. Bancorp (USB 1.56%). According to an analysis by KBW, these banks are expected to boost their annual payouts by between $0.08 per share on the low end and $0.22 per share on the high end.
|
Bank |
Est. 2017 Cumulative Dividend Per Share |
2016 Cumulative Dividend Per Share |
|---|---|---|
|
BB&T |
$1.28 |
$1.20 |
|
PNC Financial |
$2.42 |
$2.20 |
|
U.S. Bancorp |
$1.22 |
$1.12 |
Data source: KBW.
KBW published these projections before the results from the first round of this year's test were released last week. But nothing in that release would lead one to think that reasonable increases won't soon be forthcoming.
All three of these banks demonstrated in the first round that they have more than enough high-quality, highly liquid capital to survive an acute economic downturn.
To do so, a bank must maintain a common equity tier 1 (CET1) capital ratio of 4.5% through a hypothetical economic gauntlet that resembles the 2008 financial crisis. None of these three banks even came close to dropping below that. BB&T's CET1 ratio bottomed out at 7.9%, PNC Financial's at 8%, and U.S. Bancorp's at 7.6%.
A portfolio of dividend stocks can lead to growing income over time. Image source: Getty Images.
Most impressively, according to the Fed's forecasts, PNC Financial and U.S. Bancorp would even earn a profit through the test's nine-quarter time horizon. The Fed projected that BB&T would suffer a loss, though the extent of the loss is immaterial.
The net result is that shareholders in BB&T, PNC Financial, and U.S. Bancorp can reasonably expect to soon see an uptick in their quarterly dividends. At this point, it seems less about if this will happen, and much more about when the moves will be announced.
