By Scott Mathews
We took a cue from the Fed. These financials have the cash flow and balance sheets to clear the way for higher dividend payments in 2011. Some dividends are set to head much higher. Here is what we found:
Huntington Bancshares (HBAN): A bank with Midwestern roots, Huntington successfully repaid the $1.4 billion dollars of preferred shares held by the government as a part of TARP. The most recent stress tests yielded positive results, reinforcing the view that Huntington has successfully navigated its way back from the brink and set itself off for steady growth going forward. Currently, HBAN is trading at $6.6/share with a capitalization of $5.7 billion and forward P/E of 9.5. EPS growth is targeted at just over 103% while Stifel Nicolaus reiterated a buy rating and set a target between $8.5-9.5/share. Huntington is yielding a modest .61% dividend currently, but given the need to boost capitalization combined with its growing fiscal security, increased dividends may be in the offing.
Regions Financial Corporation (RF): Trading at $7.3/share with fair value estimates at $8/share, this regional bank with a dominant presence in the Southeast has charged hard against the crisis and its considerable loan portfolio challenges. Seemingly, the captaining of this effort has been exhausting and management has turned over with new leadership taking the reins. Regions has a forward P/E of 12.6 and currently still seems to be climbing out of the pit it has found itself in, the result of massive over-acquisition prior to the boom, and over-extension in construction lending. The dividend is .55%, so with the continued upward momentum that is forecast, this figure could soon see upward revision.
SunTrust Bank (STI): RBC Capital Markets just reiterated an outperform rating for this stock, setting a target between $31-36/share. This compares very favorably with its current $29/share price and the forward P/E of 13 coupled with EPS growth targets of 95% for this year and it may be time for dividend investors to really look into STI. Currently, the dividend is very minimal, at just .14%, giving it plenty of potential to be set much higher.
KeyCorp (KEY): Just recently exiting from TARP engagements, KeyCorp had secured government shareholder permission to increase its dividend very conservatively from $0.01/share to $0.03/share. However, there is chatter that the dividend could be doubled to take up nearly a third of the projected profits in 2011. This relatively large shift in dividend payout, coupled with its relatively conservative final stance is a promising situation that seems to indicate a protection of shareholder value over the long term. Currently trading just under fair value estimates at $8.8/share, the share price has backed off while top-end forecasts still remain over $14/share. It also has a nice forward P/E of 10.5.
JP Morgan Chase (JPM): Jamie Dimon’s much lauded JP Morgan Chase was the darling of the crisis. Now it is setting up to show that it can deliver on the lustrous reputation it built in the storm. Currently trading at $45.5/share with many reputable analysts putting targets at $60+/share, there seems to be upside potential, to say the least. EPS projections are 75% for the year and the forward P/E is a somewhat sterling 8.15. With all those positives lining up, its modest .44% dividend could soon be judged too low and thus revised upward.
Bank of America (BAC): Bank of America is the largest US lender and one of the Big Four Banks in the US. The company serves clients through operations in more than 150 countries. BAC’s dividend yield is 0.04 or 0.30% and the stock price last traded at 14.04. At press time, BAC had not asked the Fed for approval to raise its dividend, but will ask for a 'modest’ raise in the second half of the year. Trading at $13.9/share, BofA has a forward P/E of 7.5 and a dividend that's ready for a bump: only .29%(!).
BB&T Corporation (BBT): BB&T is another southeastern bank that has found its footing again and could increase its dividend. Currently trading at $26/share, $5 below our fair value estimate, BB&T increased market share during the crisis. It has a healthy 2.25% dividend, but given its headwinds, could revise that upward. Deutsche Bank just upgraded them to a buy rating on March 11.
Citigroup (C): Another heavy hitter, this one is struggling more than its peers to rebuild its reputation. That said, it has faced its significant challenges with deft frankness and currently trades off 50%, below fair value targets for the stock. Currently trading at $4.4/share with a forward P/E of 8.1 and strong 2011 EPS projections at 14.7%, Citi could soon revisit its dividend situation.
Wells Fargo Company (WFC): Wells Fargo has kept it to basics: customer relationships. By focusing on the micro, it has been able to manage credit risk that translate to its more macro indicators: A fair value call at $39/share (a nearly $8/share premium to current trading price), forward P/E of 8.7, 2011 EPS target at a solid 27% and PEG of 1.54. Speaking of dividends, WFC currently yields .63%, but given the previously mentioned stats, it seems to indicate that upward mobility might play into that figure.
US Bancorp (USB): UBS, RBCCM and Oppenheimer have all rated the company as either outperform or buy in the past quarter. Currently, it trades at $26.5/share, which is at a moderate discount to the top-end targets set by the aforementioned institutions that set that target at $32, $30 and $31 respectively. A .76% dividend doesn’t necessarily match up with its solid figures and dependable, fee-based revenues, so keep an eye out for an increase.
PNC Financial Services Group (PNC): PNC’s performance has been ahead of the projections curve. Beating expectations and generating healthy profits, Deutsche Bank reaffirmed a buy rating for the stock and set a top-end target at $73/share, well above its current trading price of $61/share. The forward P/E is 9.6 and its modest .65% dividend could soon be reworked in a positive direction.
American Express (AXP): Widely considered the high-end credit card of choice, if not the most convenient to use, American Express delivers a healthy 1.61% dividend to shareholders. While analyst targets might put some downward pressure on the current $44.8/share price in the short-term, its very cash-generative business that profits from full value-chain control, underscores the long-term strength that could justify an increase to dividend yields as a draw for income investors. The future P/E is 11 with 2011 EPS growth targets at 11.7%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.