US Bancorp Raises Its Dividend, But What About Capital Gains?

On Tuesday, US Bancorp (USB) announced a 21% increase in their dividend. This raised their yield from 3.8%, at the start of trading Tuesday, to 4.7%, at their close Tuesday. Yesterday, USB closed up 3.5% which brought their yield down a bit to 4.5%.

In our rankings, US Bancorp is ranked solidly in the middle at #14. With everything else being equal, the new dividend would raise them to #10 in our rankings. Since everything else isn’t equal, especially with mergers [Bank of New York (BK) and Mellon Financial Corporation (MEL)] and buyouts [BNK] freeing up some space in our top 10, we won’t be too surprised to see USB around #7 next quarter.

But, if we like dividends, especially raising dividends, why would USB only move up 3 or so spots? After all, just a few days ago, we posted an article mentioning how disappointed we’ve been about JP Morgan Chase (JPM) not raising their dividend. Plus, as mentioned in USB’s announcement yesterday, they have a “commitment to return at least 80% of [their] earnings to shareholders through dividends and a stock repurchase program.”

The answer is that we’re looking for a balance between dividends and capital gains. Looking at USB’s new price of $35.58, we don’t see much more upside for now. In short, two reasons:

1. Until we can see supporting numbers in the next couple quarterly reports, we think the 21% dividend increase is a bit of a stretch.

2. The other 80% of their return to shareholders is stock repurchases, which just got more expensive.

So, if you already held USB, you got a nice Christmas present with today’s 3.5% gain. If not, buying now might get you a lump of coal for the next quarter.

Between changes in the stock price and their next report, we’ll see where USB fits when we regenerate our rankings for the next quarter. It seems pretty fair to say they’ll be in the top 10, but we’ll wait until it happens before sending them their basket.

USB 1-yr chart

In other dividend news, JPM also announced their next dividend yesterday. $.34, unchanged, as expected. But next time, it’s next year, Mr. Chairman.

Disclosure: Author is long JPM.