Banking on Dividend Hikes

04/09/2015 9:00 am EST


Charles Carlson

Editor, DRIP Investor

The Federal Reserve recently signed off on capital-return plans of several major US banks. The result is a plethora of dividend hikes in the group, observes dividend expert Chuck Carlson, editor of DRIP Investor.

JP Morgan Chase (JPM) plans to hike its dividend 10% to a quarterly rate of $0.44 per share, payable July 31. Based on the new dividend, these shares yield 2.8%.

The bank also plans to authorize a stock repurchase of up to $6.4 billion worth of outstanding shares between April 1, 2015 and June 30, 2016.

Wells Fargo (WFC) is boosting its dividend 7% to a quarterly rate of $0.375, payable in the June quarter. Based on the new dividend, these shares yield 2.7%.

US Bancorp (USB) plans to increase its dividend 4% to a quarterly rate of $0.255, payable in July. Based on the new dividend, the stock yields 2.3%.

The bank also plans to authorize a five-quarter stock repurchase plan of up to $3.02 billion of its outstanding shares, beginning on April 1, 2015.

Regions Financial (RF)—an Editor’s Portfolio holding—stated in its capital-return plan that it may increase the quarterly common dividend 20% to $0.06 per share.

The bank also plans to repurchase up to $875 million in common shares, although the exact timing of these moves was not disclosed. Based on a quarterly dividend of $0.06 per share, the stock yields 2.4%.

Overall, dividend hikes and buybacks should help draw investors to the banking sector. The hefty yields are another lure. I look for the banking group to outperform the market in 2015.

Please note all four of these stocks offer direct-purchase plans whereby any investor may buy the first share and every share of stock directly from the companies.

JP Morgan, Wells Fargo, and US Bancorp are all solid holdings in the sector and would fit nicely in any DRIP portfolio. Regions Financial also has appeal but is suited more for DRIP investors willing to take on more risk for higher returns.

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