Stephen Chernin/Getty Images
doubled its dividend, leading a parade of big banks that lifted their quarterly dividends on Monday for the first time in two years after clearing the Federal Reserve’s stress tests last week.
Morgan Stanley (ticker: MS), which has benefited during the past year from its strength in trading and investment banking, hoisted its dividend to 70 cents from 35 cents, exceeding an optimistic estimate of 55 cents from Barclays analyst
Jason Goldberg.
Morgan Stanley, whose shares fell 70 cents on Monday before the announcement, to $87.70, will yield 3.2%.
In premarket trading Tuesday, Morgan Stanley shares were up 3.2%, to $90.50.
(WFC) also doubled its dividend, to 20 cents a share, and said it planned to buy back $18 billion of stock in the coming 12 months. But the new Wells Fargo dividend would be below Goldberg’s estimate of 25 cents and remains well below the bank’s previous dividend of 51 cents before it was slashed last year.
Wells Fargo, like many big banks, is emphasizing share repurchases. Between buybacks and dividends, Wells Fargo could return about 10% of its current market value to holders in the next year. Its shares were up 0.8% in premarket trading Tuesday. The banks were asked by the Federal Reserve to hold off making announcements about their dividend and buyback plans until 4:30 p.m. Monday.
(GS), which has produced record results in recent quarters, sharply boosted its payout by 60%, to $2 a share per quarter from $1.25, matching Goldberg’s projection. Goldman shares will yield 2.2% based on their closing price on Monday of $368.71. Its stock has risen 1.4% to $373.87 in premarket trading Tuesday.
Industry leader
(JPM), as expected, increased its dividend to $1 a share per quarter from 90 cents. At $154, its shares yield 2.6%. Its stock was off 0.1%, at $154.24, in premarket trading Tuesday.
(BAC) said it planned to lift its quarterly payout by 17%, to 21 cents a share, in line with expectations. Its shares will yield 2% based on its closing price Monday of $41.56. Its stock was down 0.2% to $41.49 in premarket trading Tuesday.
(C) said it “look forward to continuing with our planned capital actions, including common dividends of at least 51 cents per share.” Its current payout is 51 cents. The analyst expectation is for a new dividend of about 54 cents. Its stock had dropped 0.5% to $71.15 in premarket trading Tuesday.
“The Fed stress tests were redemption for the banks,” said Mike Mayo, banking analyst at Wells Fargo. “The banks had the strength and wherewithal during the recession to avoid dividend cuts, and they have enough firepower on the other end for increases.” Mayo made these comments before the bank actions today.
“This is a new day for banks,” he said. “It reflects some of the strongest balance sheets in a generation.”
Mayo’s view is that “new investors” will be attracted to banks because of their increased dividend security and a combination of dividends and stock buybacks that could produce a total annual yield of around 8%, against 5% or so for junk bonds.
Many big banks are expected to return 100%–or more—of their earnings in stock buybacks and dividends during the coming 12 months. The dividend and buyback plans are subject to approval by the banks’ boards.
Banks have more flexibility to repurchase stock under current rules and no longer have to ask specific permission as long as they have ample capital. Banks like JPMorgan haven’t announced buyback targets in the coming year.
Write to andrew.bary@barrons.com
