How to Profit From the Fed's Bank Dividend Decisions

The Wall Street Journal is reporting that the Federal Reserve is set to inform US banks on Friday about ability to raise dividends. While banks are not allowed to reveal any underlying findings or analysis, they will be able to announce their plans as early as Friday. Results for banks that announce a dividend increase will be straightforward for investors but banks that do not announce dividend payments could provoke investor suspicion regardless of how they frame their decision. Bank stocks could be big movers on any dividend announcements. As we have mentioned in previous articles, the best way for investors to leverage off of the bank dividend increases is through the TARP warrants. These warrants are long dated derivatives that include anti-dilutive features. For example, past a certain dividend threshold, the exercise price on the warrants will adjust downward for the excess dividend amount. As the dividend increases, the... Read more