Fed's Bank Dividend Approvals Should Help Stock Valuations

We wrote last January that in 2011 increased bank dividends would emerge as a new investment theme, one likely to push market valuations higher. We predicted that 7 of the largest 19 U.S. banks were likely to raise their common dividends, once the Federal Reserve completed its latest stress test of their capital sufficiency and reviewed their respective capital plans. On Friday, in the first easing of regulatory oversight since the financial panic of 2008, the Fed announced approvals that were more accommodative than we dared hope, to payouts (in combinations of dividends and stock repurchases) to about 30% of earnings, well above our expected 20%. Notably, it approved increased dividend requests of banks that have yet to repay their TARP obligations. Cumulatively, banks received approval to increase their dividends by more than $8.7 billion. Total dividends will likely exceed $12 billion this year, more than the $7.9 billion earned... Read more