U.S. Bancorp (NYSE:USB) has paid a dividend continuously since 1863, the same year as the Battle of Gettysburg. This is the third-longest streak among companies on the S&P 500 and the ninth-longest among all companies in the United States.
I don't know what's more amazing: That U.S. Bancorp initiated a dividend at the nadir of the Civil War, when you'd expect banks to be hoarding capital, or that it's paid one every year since then. Either way, it speaks to a point that CEO Richard Davis made when explaining to me the bank's philosophy toward capital allocation:
Our dividend policy is designed to telegraph to shareholders that they're important. That's why we committed in 2000 to paying out 30-40% of our earnings to shareholders each year, in addition to the 30-40% allocated to buying back stock. We haven't veered from this since.
The financial crisis, as well as bank history, show how improbable this streak has been. As bad as the 2008 downturn was, it paled in comparison to the Civil War. Yet, while U.S. Bancorp inaugurated its dividend in the midst of a conflict that killed 2% of the American population, not a single bank that I'm aware of initiated one during the financial crisis.
The experiences of the nation's two biggest banks going into the latest crisis serve as cases in point. Bank of America (NYSE:BAC) and Citigroup (NYSE:C) both slashed their dividends to $0.01 a share in exchange for hundreds of billions of dollars' worth of capital and government guarantees. It's my understanding that the only reason regulators didn't require Bank of America and Citigroup to eliminate their payouts completely is because doing so would have aggravated the crisis by forcing certain institutional investors to divest their holdings in the two megabanks entirely.
And the financial crisis was far from the worst economic downturn over the past 153 years, which speaks to U.S. Bancorp's commitment to rewarding shareholders through thick and thin.
The Gilded Age was particularly volatile. Two bona fide depressions occurred in the 42 years from the end of the Civil War to the Panic of 1907. People literally starved during these, and many hundreds of banks failed.
Fast-forward two generations and you arrive at the Great Depression. The most salient characteristic of which, in addition to human suffering, were repeated bank runs. These didn't stop until President Roosevelt gave one of the most effective presidential speeches of all time -- his inaugural fireside chat. After explaining his decision to temporarily close all of the nation's banks and thereafter reopen only those that were sound, he said:
[I]t is my belief that hoarding during the past week has become an exceedingly unfashionable pastime in every part of our nation. It needs no prophet to tell you that when the people find that they can get their money -- that they can get it when they want it for all legitimate purposes -- the phantom of fear will soon be laid. [...] I can assure you, my friends, that it is safer to keep your money in a reopened bank than it is to keep it under the mattress.
While the Great Depression fed into the so-called Great Moderation, spanning roughly 1940-1970, during which bankers acted especially prudently, the industry flared up again as a new generation with no direct knowledge of the 1930s assumed the reins. What followed was reminiscent of the 1920s, as explained satirically by Fred Schwed in his timeless classic Where Are the Customers' Yachts?:
Your truly conservative banker cannot be stampeded into unwary speculations by the hysteria of a boom. He sits tight through '26, '27, and '28. Unfortunately, he begins to come into the market in '29. He begins cautiously enough, like an old maid trying out lipstick in the privacy of her room. But he pulls out again, and, while a nice piece of money is lost, no one is ruined. He apologizes to himself for having had a human moment and resumes his thirty-year-old policy of listening attentively and saying 'no.'
This is tongue-and-cheek, of course, but Schwed makes a valid point. The windfall profits earned by oil-exporting countries following the twin oil shocks of the 1970s resulted in so much liquidity that banks were left scouring the globe to lend it out. The most avid recipients were Latin American countries like Mexico and Argentina. After all, as Citigroup's legendary CEO, Walter Wriston, said at the time, "Countries don't go bust."
When many of these countries failed to heed Wriston's point and started defaulting on their bank loans, many of the industries' biggest players -- most notably Bank of America and Citigroup -- were on death's doorstep for the second time in four decades. And this was only the beginning. The double-digit inflation tied to higher energy prices spawned the Savings and Loan Crisis of the 1980s, which hollowed out the thrift industry. On top of this, virtually every major bank in Texas failed over the same stretch after energy prices plummeted from their peaks.
In total, more than 17,000 banks have failed since U.S. Bancorp paid its first dividend in 1863. That it's been able to continue doing so through all of this serves as a testament to its strength as well as its commitment to sharing the fruits of its labors with shareholders.