Big Banks Just Announced Big Dividend Increases and Share Repurchase Programs

Typically, each month we summarize dividend increases in a monthly article.  But this month, the Big Banks deserve some special attention.  At the end of June, bank after bank began announcing large dividend increases.   Therefore, in this article, I am going to discuss some of the largest increases, along with the event that prompted the dividend increases.

Why are Big Banks Increasing their Dividend?

This is a great question.  If you haven’t noticed, there is a trend of banks announcing large dividend increases in the summer.  This is due to the completion of the Federal Reserve’s annual assessment of capital adequacy and capital planning for large financial institutions (aka Big Banks).  The objective of the assessment is to ensure that bank’s are capitalized and can withstand a sudden downturn in the economic environment.  Think of how quickly things turned sour during the last financial crisis.  The crisis accelerated due to the fact that financial institutions were not adequately capitalized to withstand losses.  So now, Big Banks are subject to this annual examination by the Federal Reserve.

The threshold for banks subject to this analysis continues to increase.  At first, with Dodd-Frank, banks over $50 billion in Assets were required to perform testing.  As economic conditions improved and deregulation has occurred, the asset threshold has increased.  In 2019, only the 18 largest institutions were required to perform stress testing and capital planning,

There are two components to Fed’s evaluation:

  • The Dodd-Frank Act Stress Test (DFAST) –  This test was a result of the financial crisis.  Bank’s need capital to survive.  Bank’s are required to report metrics called “Capital Ratios” to determine if a bank is well capitalized, adequately capitalized, or under capitalized.  The Stress Test runs institutions through various, “stressful” economic scenarios to determine how scenarios would impact the bank’s capital ratios.  Thus, scenarios can consist of anything. They can include  a sudden spike in unemployment, sharp increase in interest rates, a financial crisis, etc.  The point of this test is to better prepare large institutions to economic crises to potentially avoid the capital shortages that were a result of the last crisis.  For more information about capital ratios, please check out the following Investopedia article.
  • The Comprehensive Capital Analysis and Review (CCAR) –  The CCAR is the second component of the FEd’s annual assessment.  Considering the results of stress testing, banks submit to the Federal reserve their capital planning.  This includes the bank’s future plans to fund the institution, pay dividends, repurchase shares, and how that may impact the bank’s capital ratio.   Thus, the Fed will review each bank’s submit capital plan to assess whether the planned capital strategy would threaten the results of the bank’s stress test and cause a bank to become undercapitalized.  In theory, a bank could pass a stress test but fail the CCAR.  If a bank were to plan too large of a dividend increase or share repurchase program in the coming year, the Fed would force the institution to adjust their plan.

Once a bank passes both parts of the stress test, the banks are free to execute their capital planning.  If their plan includes large dividend increases and share repurchase programs, then the bank is free to announce the plan.   The Federal Reserve issues a report detailed their methodology and the results of the examination in June.  This is an excellent segue into our next topic.

Announced Dividend Increases and Share Repurchase Programs

The 18 banks included in the report passed this year.  Indicating that the Federal Reserve gave these banks the go ahead to increase their dividend and announce share repurchase programs.  And man, once the green light was given, the flood gates opened up.  Here are some of the announced increases:

  • Bank of America (BAC) – Announced a 20% increase in their dividend AND authorized $30.9 billion in share repurchases through June 30, 2020.  Disclaimer:  I own BAC. Therefore, I couldn’t be happier as a dividend investor!
  • J.P. Morgan Chase & CO. (JPM) – Announced a 12.5% increase in their dividend AND authorized up to $29.4 billion in share repurchases.
  • Wells Fargo (WFC)  – Announced a 13.3% increase in their dividend AND authorized up to $23.1 billion in share repurchases.
  • Citi (C) – Announced a 13.3% increase in their dividend AND authorized up to $17.1 billion in share repurchases.
  • Goldman Sachs (GS) – Announced a 47% increase in their dividend AND authorized up to $7.0 billion in share repurchases.
  • U.S. Bank (USB) – Announced a 13.5% increase in their dividend AND authorized up to $3 billion in share repurchases.

Holy Capital Ratios!  I mean, look at those numbers.  I only included one-third of 18 banks that passed the stress testing.  To all the shareholders of these corporations, congratulations.

Read Here about why Share Repurchases are BIG News for Dividend Investors


Something that comes to my mind when reading this:  What does this mean?  Are these increases too large?  The reality is, it is hard to predict how exactly the next financial crisis will unfold.  As you know, banking is always changing.  In particular, the last 12 months have been a roller coaster ride in terms of interest rates (As Lanny discussed in a detailed article here) The stress testing and capital planning is a great way for the company to carefully consider the capital that will be required by a bank when the next crisis arrives.   The capital plans are required to be considered in conjunction with the stress testing.  Because of this, I feel better about the announced dividend increases and share repurchases.  Even if the numbers are insanely large.

One other thing to consider.  For many banks, their dividend yields are still trailing their pre-financial crisis levels.  Let’s use Bank of America as an example.  After this dividend increase, the company’s dividend yield is close to 2.5%.  On 11/30/06, Bank of America had a dividend yield of 3.87%.  At 3/1/00, their dividend yield was 4.11%.   This shows me that BAC, and other bank’s still have some room to go before reaching their historical dividend yields.  However, I guess there is a shot that they may not reach that point if they are required to retain more capital that pre-financial crisis.   Regardless,  this was fantastic news for shareholders of Big Banks!

24 thoughts on “Big Banks Just Announced Big Dividend Increases and Share Repurchase Programs

  1. Loved seeing all those raises coming in. Especially since I own 4 of the “Big Banks” and each one delivered a 12.5%+ increase. As a DGI that’s absolutely fantastic even more so since the news all broke within about 10 min of each other.

  2. Wow! As I don’t own shares in any bank, I must have missed those gigantic dividend increases and repurchase programs. I think it’s about time to find myself my first bank to invest in!

    Thanks for the info!

    – David

    • David – Don’t worry, other industries will benefit from the large dividend increases as well. But there are still plenty that are undervalued if you look hard enough for them.


  3. DDs,
    That is some intense news. I saw DFS is also increasing along with a few other major regional banks. The Canadian banks are still doing there thing too. More money for us!
    – Gremlin

  4. If BAC ever gets back to its pre crash dividend of .66 a share. I’ll be happy at 262 shares right now that will grow even more. I might have to look at adding another bank if one drops.

  5. If BAC ever gets back to its pre crash dividend of .66 a share. I’ll be happy at 262 shares right now that will grow even more. I might have to look at adding another bank if one drops.

  6. I was looking for the dividend announcements of the big US banks and couldn’t find it yet. Now I see it for the first time here. Thanks for publishing, guys!
    And boy I’m happy to read about these amazing raises. I own an overweight position in JPM and a 2/3 position in BAC. +20% and +12.5%..hell yea! I take it! 🙂

  7. I only own Wells Fargo in that group. Also, own BBT and Arrow. I’ve been a little timid about bank stocks since getting pounded 10 years ago in the financial crisis. Hopefully, we will never see that again. Nice review. Tom

    • Tom – I think we are in a lot better position now and there is a lot more transparency into the types of lending activities that caused the recession. LEt’s enjoy the dividend and the level of certainty that we have right now.


  8. For some reason, I’ve shied away from banks. Maybe it’s because the last financial meltdown left a bad taste in my mouth. Not saying it’s a bad thing though…it’s just something I feel uneasy about.

    • Understandable. But if it makes you feel better, there are a lot of great financial institutions, large or small, that have strong capital ratios and high underwriting standards. So there are some hems to find out there.


  9. I was late hearing the news so didn’t jump aboard. Hopefully a Fed rate cut in July gives us a small dip?
    I like JPM and BAC…hard not to consider WFC at their yield. Why the heck haven’t they hired a CEO? sheesh.
    Thanks for posting this.

    • I would love a dip to add right now. I’m sure rate cuts were a nice part of the stress testing performed. So that scenario had to hae been tested plenty of times. No clue about WFC!


  10. That’s a big increase from the banks. I own JPM and BAC. As a DGI investor that’s the happiest thing to hear. Waiting for a raise from DAL, Honeywell (HON), and Microsoft (MSFT).

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