Analyst Sameer Gokhale estimates Discover (DFS -1.4%) will come through the Fed stress tests (results on March 20) with a minimum Basel III Tier 1 common equity ratio of 8.95% and Fifth Third (FITB -0.8%) 7.3%. As both should be comfortably above 7% under the severely adverse scenario, higher payouts for should be justified.
Gokhale prefers to use payout yield - total annual dividends and buybacks divided by the share price - as opposed to payout ratio, and Discover and Fifth Third have two of the highest, 8.6% and 6.2%, respectively.
He's expecting Discover's quarterly dividend to be boosted to $0.21-$0.23 per share from $0.20 now, and $1.1B-$1.5B in buybacks to be approved. Fifth Third could lift its dividend by $0.03 to $0.15 per share and be approved for $1.B-$1.3B in buybacks.