Earlier this year, Bank of America (NYSE:BAC) announced that it would increase its dividend by 60%, boosting its quarterly payout from $0.075 per share up to $0.12 per share.

That's a hefty increase by any measure. While it's true that Citigroup's (NYSE:C) dividend jumped by an even larger margin when the bank doubled its payout at the end of June, Bank of America's dividend hike nevertheless left its two other primary peers in the dust.

Following the conclusion of this year's stress tests, in which large banks apply for permission to raise their dividends, Wells Fargo (NYSE:WFC) announced a 2.6% increase in its dividend while JPMorgan Chase (NYSE:JPM) ratcheted its payout higher by 12%.

Bank

Current Dividend Per Share

Previous Dividend Per Share

Change

Citigroup

$0.32

$0.16

100%

Bank of America

$0.12

$0.075

60%

JPMorgan Chase

$0.56

$0.50

12%

Wells Fargo

$0.39

$0.38

2.6%

Data source: Company news releases.

Why is Bank of America in a position to grow its dividend so quickly?

In the first case, it's because Bank of America currently pays out a smaller share of its earnings each year to shareholders than JPMorgan Chase and Wells Fargo do.

Bank of America's payout ratio over the trailing 12 months is only 24%, up from 18% following its latest distribution. JPMorgan Chase's comes in at 33%, while Wells Fargo's is 41%. And looking at big banks more broadly, the average on the KBW Bank Index, which tracks shares of two dozen large-cap bank stocks, is 34%.

The reason Bank of America's payout ratio is so much lower traces back to the financial crisis, when the Charlotte, North Carolina-based bank had to cut its dividend to $0.01 per share in order to preserve capital to survive the worst economic downturn since the Great Depression.

Since then, under the Dodd-Frank Act of 2010, banks no longer have unfettered discretion to raise their payouts. They must instead get the Federal Reserve's approval to do so as a part of the Comprehensive Capital Analysis and Review, which is the second of the annual stress test's two phases.

A conference room being used by Bank of America specialists for a financial seminar.

Image source: Bank of America.

In the first year of the stress tests, in 2011, Bank of America requested a dividend increase but was denied -- click here for Bank of America's stress test history. It then didn't ask again until 2014, at which point it was able to boost its quarterly payout from $0.01 per share up to $0.05 per share.

It took another pass in 2015, but then was given approval to up its dividend again in 2016, to $0.075 per share. And it was in the wake of the most recent stress test that Bank of America's dividend grew to its current quarterly payout of $0.12 per share.

Citigroup has been in a similar situation over the past seven years, only raising its payout three times as well. By contrast, JPMorgan Chase and Wells Fargo have been given the go-ahead every year since the new regulatory regime under Dodd-Frank took effect.

It's for this reason, in turn, that Bank of America was able to increase its dividend by 60% this year, yet still have a payout ratio that's below the average of its peer group.

John Maxfield owns shares of Bank of America and Wells Fargo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.