Now that the first round of this year's stress test is over, with all 34 of the banks passing it, there's a growing likelihood that most of the nation's biggest banks will soon raise their dividends. This includes JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), and Citigroup (NYSE:C).

The first round of these tests, referred to as the Dodd-Frank Act stress tests, is used by the Federal Reserve to determine if banks with more than $50 billion in assets on their balance sheets have enough capital to survive a severe economic downturn akin to the financial crisis.

The second round, known as the Comprehensive Capital Analysis and Review, then builds on the first round. The banks seek permission to increase their dividends and share buybacks. The theoretical impact from those requests is then added to the results from the first round of the test to gauge the cumulative effect on a bank's capital.

Coin stacks with plants growing on top.

Image source: Getty Images.

Inherent in this process is the fact that the Fed has veto authority over big bank capital plans, which it has exercised in the past in the case of Bank of America and Citigroup. But this year, given the inordinate amount of excess capital most banks currently hold on their balance sheets, there's little reason to think that regulators will stand in the way of reasonable requests.

It's for this reason that most analysts expect all four of the nation's biggest banks by assets to get approval to raise their dividends this year. At the low end, the increases are expected to come in at less than 10% on a year-over-year basis. At the high end, the anticipated growth in annual payout is expected to top 60%.


2016 Cumulative Dividend Per Share

2017 Cumulative Dividend Per Share

Bank of America






JPMorgan Chase



Wells Fargo



Data source: KBW. Chart by author.

The biggest percentage increase is expected to come from Citigroup, which could see its annual payout grow by 63%, according to KBW. Bank of America ranks second, with a 33% projected increase. JPMorgan Chase and Wells Fargo bring up the rear, at 8% and 7%, respectively.

The difference between these four banks boils down to their recent dividend histories. While JPMorgan Chase and Wells Fargo have boosted their quarterly payouts every year since 2011, Bank of America and Citigroup have done so only twice. The net result is that the latter two banks have more room to grow their payouts going forward.

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