TARP allows the United States Department of the Treasury to purchase nonliquid, difficult to value assets from banks and other financial institutions. TARP also allow the Treasury to purchase whole loans and make direct equity investments in banks themselves. The targeted assets are securities backed by mortgages, sometimes described by the government, media, and others as “troubled” or “toxic” assets.
As of November 12, 2008, $290 billion of the first $350 billion allotment funding TARP has been allocated, primarily to the Capital Purchase Program: $250 billion for bank equity infusions, and $40 billion for an equity infusion into insurer American International Group.[
The eight financial companies that were the first to have received TARP funds include:
Bank of America (BAC) (analysis)
Bank of New York Mellon Corp
Citigroup (C )
Goldman Sachs (GS)
JPMorgan Chase (JPM)
Morgan Stanley (MS)
State Street (STT)
Wells Fargo (WFC)
There were 44 other institutions that received TARP money, including USB, CMA, Northern Trust, Suntrust Banks, KeyCorp, RF, BB&T and others. Check out my analysis of USBank or my analysis of BB&T.
There is some talk that a TARP funding to banks essentially marks the end of their dividends.
"Restrictions on Dividends:
For as long as any Senior Preferred is outstanding, no dividends may be declared or paid on junior preferred shares, preferred shares ranking pari passu with the Senior Preferred, or common shares (other than in the case of pari passu preferred shares, dividends on a pro rata basis with the Senior Preferred), nor may the QFI repurchase or redeem any junior preferred shares, preferred shares ranking pari passu with the Senior
Preferred or common shares, unless (i) in the case of cumulative Senior Preferred all accrued and unpaid dividends for all past dividend periods on the Senior Preferred are fully paid or (ii) in the case of non-cumulative Senior Preferred the full dividend for the latest completed dividend period has been declared and paid in full.
Common dividends: The UST’s consent shall be required for any increase in common
dividends per share until the third anniversary of the date of this investment unless prior to such third anniversary the Senior Preferred is redeemed in whole or the UST has transferred all of the Senior Preferred to third parties." Source TARP Capital Purchase Program
What really showed me that TARP program is serious, is a recent statement from State Street last week, which announced that it wasn’t going to raise its dividends in compliance with the restrictions on dividend rate increases generally imposed on all participants in the U.S. Treasury's TARP Capital Purchase Program.
Before that State Street (STT) was the only dividend aristocrat which had consistently increased its dividends twice per year for almost 27 years in a row.
Traditionally, financial shares were one of the best yielding stocks in the marketplace. It seems that TARP essentially is bad news for any dividend investors, as it could result in further decreases to already lowered payments. The lesson to be learned for individual investors is to diversify across sectors, no matter how great the yields look.
- My Dividend Growth Plan - Diversification
- My Dividend Growth Plan - Money Management
- Why do I like Dividend Aristocrats?
- Bank of America (BAC) Dividend Analysis
- BB&T Corporation (BBT) Stock Dividend Analysis
S&P 500® Dividend Aristocrats measure the performance S&P 500 companies that have increased dividends every year for the last 25 con...
This is a guest post written by Retire Before Dad. He writes about dividend investing, personal finance and travel at the Retire Before Dad...
This is a guest post from Roadmap2Retire blog , which documents the retirement journey of a dividend growth investor from Canada. I am an ...
I have shared with you early in the year, that I am essentially living off dividends and side income in 2016. I am saving my other income i...
Investing in dividend growth stocks has been a winning investment over the past 8 – 10 years. I myself have invested in dividend growth stoc...
Last week I shared with you the list of 2016 Dividend Aristocrats and its performance over the past decade . In addition, I isolated twenty...
As an investor, I have always believed in diversification . I would rather err on the side of caution, rather than swing for the fences. It ...
The Procter & Gamble Company (PG), together with its subsidiaries, manufactures and sells branded consumer packaged products worldwide....
Unilever PLC (UL) operates in the fast-moving consumer goods market in the Africa, Americas, Asia Pacific, Europe, and Middle East. The comp...
Mark Seed is passionate about personal finance and investing and is the blogger behind My Own Advisor . Mark is currently investing in divi...