Take that, Mr. Market! Just as fresh fears of a dividend cut pushed shares of Income Investor pick BB&T
Bank dividends: here today, gone tomorrow ...
For any waking Rip van Winkles, let's just say a dividend increase amounts to bucking the trend in the current banking environment. After all, this news comes one day after BB&T's peer, Fifth Third Bancorp
The problem isn't confined to the regional banks, either. Just last week, another Deutsche Bank note affirmed that the options market is prepared for Bank of America
What this says about BB&T
In that context, BB&T's surprise move should go a long way toward reassuring the market that the bank is sufficiently well capitalized to endure the credit crisis without having to call for outside capital. Furthermore, it reduces the likelihood of a takeover, a possibility that was floated recently by a CIBC World Markets analyst. By putting its reputation on the line, BB&T management is signaling that it has a firm understanding of the extent of the difficulties it faces; if that turns out not to be the case, investors will not be forgiving. For now, BB&T trades in line with its peer group average at one times book value; perhaps the dividend increase will spur the market to award this high-quality franchise a premium.
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Alex Dumortier, CFA, has no beneficial interest in any of the companies mentioned in this article. BB&T and Bank of America are Motley Fool Income Investor recommendations. Try any of our Foolish newsletters today, free for 30 days.