7 Bank Stocks That Just Turned on the Cash Machine

These seven financial companies are turning up the volume on their dividends, stock buybacks or both

Source: Mike Mozart via Flickr (Modified)

Bank stocks and other financial companies have had an outright awful 2016. While the S&P 500 Index has been on a jarring roller coaster ride for most of the year, the index is rebounding off its Brexit slump to near record levels. All told, the broader market is actually up a couple percent after the recent snapback.

But financial stocks? Well, as measured by the Financial Select Sector SPDR Fund (NYSEARCA:XLF), the sector is off a miserable 4%-plus as a whole.

That said, the sector’s fortunes could be ready to change.

The Federal Reserve just passed out grades for its recent round of stress tests for the nation’s financial institutions, as well as a number of green lights for some big, cash-spending plans from consumer banks, investment banks and a few other companies.

Suddenly, dividends are getting plumper, stock buyback plans are getting juicier — and maybe bank stocks look just a little rosier than they did a couple of days ago.

In no particular order, here are seven big bank stocks and other financial stocks that are getting ready to dump a heaping helping of additional cash onto shareholders:

Bank Stocks Cranking Up the Cash: Bank of America (BAC)

In the Works: Dividend hike, stock buybacks
Dividend Yield (based on eventual new dividend):
2.3%

Bank of America Corp (NYSE:BAC) has long been the subject of income investing griping because of its paltry dividend recovery since the markets emerged from the 2008-09 crisis.

BofA cut its dividend from 64 cents to 32 cents in 2008 before dropping it to a mere penny — a level it would stay at until 2014 thanks to problems with its capital levels.

Even in 2014, when the dividend quintupled to 5 cents per share, BAC shares still were only yielding a little north of 1%.

Well, Bank of America hasn’t become a dividend powerhouse, but a green light to boost its quarterly payout by 50% to 7.5 cents per share will at least have BAC shares keeping up with 10-year Treasuries. The new payout at today’s prices (and remember: this dividend won’t come for a few months) would yield more than 2%.

As an added bonus, BofA also will be buying back more stock — the company got approval to repurchase $5 billion worth of shares over the next four quarters, which is $1 billion more than the plan that was OK’d in 2015.

Bank Stocks Cranking Up the Cash: Citigroup (C)

In the Works: Dividend hike, stock buybacks
Dividend Yield (based on eventual new dividend):
1.5%

Like Bank of America, Citigroup Inc (NYSE:C) didn’t just turn into a dividend dynamo, but current long-term shareholders won’t sneeze at what’s about to be a far larger quarterly check.

Citigroup passed its stress test for the second straight year, and in response, the Federal Reserve OK’d a more-than-tripling of the bank’s dividend, from 5 cents per share to 16 cents. That would take the stock’s yield from less than half a percent to 1.5% (based on current prices).

The hike should help put a little bit more cushion under C shares, and they could use it — the stock is down nearly 20% for the year-to-date, including a great deal of recent pain on the back of the United Kingdom’s Brexit vote.

Also promising is a go-ahead for Citigroup to buy back $8.6 billion in shares, which is an improvement from last year.

Bank Stocks Cranking Up the Cash: JPMorgan Chase (JPM)

Bank Stocks Cranking Up the Cash: JPMorgan Chase (JPM)

In the Works: Stock buybacks
Dividend Yield:
3.1%

JPMorgan Chase & Co. (NYSE:JPM) disappointed investors a little bit by not announcing a dividend hike of its own, but to be fair, among the big banks, JPM hardly needs the help.

JPMorgan has been among the most aggressive payers coming out of the Great Recession, starting with a move in 2011 to boost its dividend from a crisis-low 5 cents to 25 cents per share. The dividend has improved every year since then — including a previously announced hike from 44 cents to 48 cents that will be paid out in the next couple of months.

JPMorgan did, however, set the high-water mark for buyback approvals, getting the Fed’s nod for $10.6 billion in share repurchases through June 30 of next year.

Meanwhile, the huge cash spend still leaves plenty of room in case of emergency. If the U.S. entered another recession, JPMorgan’s common equity Tier 1 ratio would be at 6.8% and its Tier 1 leverage ratio would be at 5.6% — above the respective Federal Reserve minimums of 4.5% and 4%.

Bank Stocks Cranking Up the Cash: U.S. Bancorp (USB)

Bank Stocks Cranking Up the Cash: U.S. Bancorp (USB)

In the Works: Dividend hike, stock buybacks
Dividend Yield (based on eventual new dividend): 2.8%

U.S. Bancorp (NYSE:USB) joined the ranks of double-threat bank stocks, getting permission to both buy back shares and juice its quarterly dividend.

USB will ask its board to hike its dividend by about 10% to 28 cents per share for its fiscal third quarter, which would get the yield even closer to the 3% mark. Meanwhile, the superregional also will be able to ask for $2.6 billion in share repurchases.

U.S. Bancorp has actually enjoyed a much better year so far compared to the Big Four, with shares off just under 6% amid double-digit losses for the likes of Bank of America and Wells Fargo & Co (NYSE:WFC). That’s in large part because USB isn’t nearly as exposed to the energy industry — and its loan losses — as many of its competitors.

Bank Stocks Cranking Up the Cash: Ally Financial (ALLY)

In the Works: New dividend, stock buybacks
Dividend Yield (based on eventual new dividend): 2%

Investors sure didn’t get into Ally Financial Inc (NYSE:ALLY) for the dividend … because it never had one.

But that’s likely about to end.

Ally Financial delivered perhaps the sweetest reward among financial stocks with an OK on its plan to begin offering an 8-cent quarterly payout. If approved by the bank’s board, the plan would take the yield from … well, nothing, to about 2%.

As an added bonus, Ally also got the approval to buy back $700 million in shares over the next four quarters.

Ally financial — formerly GMAC, which was spun off General Motors Company (NYSE:GM) back in 2016 — remains deeply rooted in the automotive industry, offering auto financing as well as auto protection plans. It also provides consumer banking services and products, such as saving and checking accounts.

Bank Stocks Cranking Up the Cash: American Express (AXP)

In the Works: Dividend hike, stock buybacks
Dividend Yield (based on eventual new dividend): 2.2%

American Express Company (NYSE:AXP) is another downtrodden financial hoping to perk up by dumping cash on shareholders.

By passing its stress test, American Express has a go-ahead to ask its board to hike its quarterly payout by 10%. That would take the dividend to 32 cents per share, which would bring the yield above the 2% line (based on current prices). Moreover, it’s planning to expand its buyback program by $3.3 billion to a total of $4.4 billion this year.

The company can only hope that spending all that cash will soothe AXP shareholders, who have watched shares drop 15% this year thanks to a number of issues.

The most public black mark is the company’s longstanding relationship with Costco Wholesale Corporation (NASDAQ:COST), which ended this year after AXP lost its exclusivity deal amid Costco’s shift to use Visa Inc (NYSE:V) branded cards under the Citigroup banner.

Bank Stocks Cranking Up the Cash: State Street (STT)

In the Works: Dividend hike, stock buybacks
Dividend Yield (based on eventual new dividend): 2.8%

Lastly, State Street Corp (NYSE:STT) will push its yield closer to the 3% mark should it win board approval for a Fed-approved dividend hike.

State Street provides a number of investment services, including data analysis, research and management, not to mention products such as mutual funds and exchange-traded funds. Most investors should be familiar with its State Street Global Advisors arm, which provides the popular SPDR Select Sector funds, among others.

Still, while it isn’t a traditional banker, business has been equally as bad for this financial company in 2016, with shares particularly clobbered in the Brexit fallout.

But State Street hopes to combat that with a dividend hike from 34 cents per share to 38 cents per share, as well as a share repurchase program worth $1.4 billion that will go through June 30 of next year.

The repurchase program has been approved by the company’s board, while the dividend will be discussed in a September meeting.

Kyle Woodley is the Managing Editor of InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities. Follow him on Twitter at @KyleWoodley.


Article printed from InvestorPlace Media, https://investorplace.com/2016/06/7-bank-stocks-cash-bac-jpm-ally/.

©2019 InvestorPlace Media, LLC