The Return of the Financial Dividends

The financial crisis lead to dividend cuts amongst several prominent dividend payers such as Bank of America (BAC), US Bancorp (USB) and BB&T Corp. (BBT). Over the past few weeks however, several financial companies announced that they might reconsider their current dividend policies and start raising distributions in the near future.

US Bancorp’s (USB) CEO is reviewing the company’s dividend payout, after it paid off $6.6 billion in TARP money back to the US Treasury."You will see us take action in the near-term that will be favorable," to the dividend, the company’s CEO said. The company cut dividends in March by 88% and is currently paying a quarterly dividend of 5 cents/share.

BB&T’s (BBT) President and CEO Kelly King informed shareholders the bank will "revist dividend level as soon as appropriate". The company cut its dividend by 68% in May 2009 in order to be able to repay the US Treasury. In addition to that the Winston-Salem, North Calorila based banking institution sold $1.5 billion in stock.

JP Morgan’s (JPM) CFO was a little less optimistic about the future dividend prospects of his company, citing that the company’s goal is to restore dividend only if economy doesn't "double dip". Despite the fact that he is still cautious on restoring the dividend, the CFO said the bank could raise its dividend to $0.75-$1.00/share. The company cut its dividend by 87% to 5 cents/share in February 2009.

Analysts are also expecting Pfizer (PFE) to increase dividends as well in the near future. Deutsche Bank analysts expect Pfizer Inc to increase its dividend in December. Deutsche Bank sees an increase of 15 percent to 25 percent. Pfizer cut its dividend by 50% in January in an effort to conserve cash in order to pay for its acquisition of Wyeth (WYE).

While I am generally very skeptical about companies which cut distributions, I view companies that begin raising distributions within a year of the cut very positively. It is too early to get excited about the companies listed above however. As long as they fail to actually increase distributions by sending bigger checks to shareholders, then the prospect of them raising dividends is a pure speculation.

Disclosure: None

Comments

[BlueOkie:]

BBT & PFE cut dividends but didn't eliminate them like other stocks have. I believe it was prudent decisions by both CEO's. Their stock prices have risen since the cut and I expect they'll raise dividends again. Both seem to have sufficient cash available.

Oct 02 08:16 AM

[David Van K...:]

If one of your dividend-investing rules is to drop a company that cuts its dividend, and another is to favor companies with long histories of raising dividends every year, then it's hard to know what to do with a company that has a one-or-two-year lapse in dividends but then restores its dividend to former levels. Especially if the cut was a prudent business decision, in the midst of a recession, that clearly helped the company weather the downturn.

I'm undecided on this myself. Right now, I'm leaning towards possible leniency for non-banks, but to view the banking industry very skeptically, given their recent history of making horrible business decisions and being unable to see the truck barreling down on them, especially since they built the truck.

Oct 02 09:06 AM

[greedcanbgood:]

David, I agree with you but USB and BB&T specifically appear to have retained a measure of financial strength that most other large financials have not. True, a rising tide raises all ships and indeed the converse is also true but I'm not so sure I'd view all financials as skeptically.

Oct 02 10:26 AM

[No Free Cake:]

Keep in mind that some banks kept a minimum dividend because some investors - certain institutions and trusts - are prohibited by their charter from owning non-dividend paying stocks.

This is partly behind the reason the government backed off their requirement to have banks stop paying dividends altogether when creating the bailout regulations.

A company that cut its dividend to .01 or .05, to me, is the same as elimination and I'd have to review each situation on its own to see if I'd be interested after the dividend was restored.

Oct 03 09:00 PM