Several of the large banking institutions in the US passed the Stress Tests imposed by the Federal Reserve. As a result, they announced their intentions to raise dividends and boost buyback allocations.
I went through the list of increases from last week, and focused on the institutions that have a ten year track record of annual dividend increases:
I also added ten year charts showcasing the trends in share price, quarterly earnings and quarterly dividends.
In order to understand equity returns, you need to decompose them to their sources.
Equity returns are a function of:
1. Dividend Yields
2. Earnings Per Share Growth
3. Change in valuation
In the long-run, the first two items (dividends and earnings per share) are the so called fundamental sources of returns. They drive the total return over periods longer than say a decade. The changes of valuation matter the least in the very long-run.
In the short-run however, for periods of five to ten years or less, valuation does matter a lot. This is why your returns would be much different if you bought a company at a starting yield of 4% versus a starting yield of 2%. That being said, rising earnings and dividends matter a lot too, because they provide the needed fuel behind great returns in the long-run. However, if you manage to acquire a good company at a discount, your potential returns will be higher.
Visualizing the interplay between dividend yields, earnings per share growth and the changes in valuation showcases where returns have come from perfectly well. It also provides the perspective to determine where we are today, and also to potentially provide some markers as to where a potential future buy point could be set at.
Bank of America (BAC) hiked its quarterly dividend by 8% to $0.28/share. This will be the 12th year of consecutive annual dividend increases for this dividend achiever. The company has managed to grow dividends at an annualized rate of 8.70% over the past five years.
The company has managed to grow earnings from $1.38/share in 2015 to $3.25/share in 2024.
The company is expected to earn $3.63/share in 2025.
The stock sells for 13.46 times forward earnings and a dividend yield of 2.13%.
Bank of New York Mellon (BK) increased its quarterly dividend by 12% to $0.53/share. This will be the 15th consecutive increase in the annual dividend for this dividend achiever. The company has managed to grow dividends at an annualized rate of 8.60% over the past five years.
The company has managed to grow earnings from $2.72/share in 2015 to $5.84/share in 2024.
The company is expected to earn $6.80/share in 2025.
The stock sells for 13.60 times forward earnings and a dividend yield of 2.03%.
Bank OZK (OZK) increased its quarterly dividend to $0.44/share. While this is a 2.30% raise over the dividend paid in the previous quarterly, it is also a 10% increase over the dividend paid during the same time last year. Bank OZK tends to raise dividends every quarter. This dividend aristocrat has regularly increased dividends since 1997. It has managed to grow dividends at an annualized rate of 10.90% over the past five years.
The company has managed to grow earnings from $2.10/share in 2015 to $6.16/share in 2024.
The company is expected to earn $6.10/share in 2025.
The stock sells for 8.36 times forward earnings and a dividend yield of 3.45%.
Goldman Sachs (GS) increased its quarterly dividend by 33% to $4/share. This is the 14th year of consecutive annual dividend increases for this dividend achiever. It has managed to grow dividends at an annualized rate of 22.60% over the past five years.
The company has managed to grow earnings from $12.35/share in 2015 to $41.07/share in 2024.
The company is expected to earn $44.70/share in 2025.
The stock sells for 16.20 times forward earnings and a dividend yield of 1.67%.
JPMorgan Chase (JPM) increased its quarterly dividend by 7% to $1.50/share. This is the 15th year of consecutive annual dividend increases over this dividend achiever. The company has managed to grow dividends at an annualized rate of 6.90% over the past five years.
The company has managed to grow earnings from $6.05/share in 2015 to $19.79/share in 2024.
The company is expected to earn $18.48/share in 2025.
The stock sells for 16 times forward earnings and a dividend yield of 1.89%.
Morgan Stanley (MS) boosted its quarterly dividend by 8% to $1/share. This is the 12th consecutive annual dividend increase for this dividend achiever. The company has managed to grow dividends at an annualized rate of 22.30% over the past five years.
The company has managed to grow earnings from $2.97/share in 2015 to $8.05/share in 2024.
The company is expected to earn $8.68/share in 2025.
The stock sells for 16.60 times forward earnings and a dividend yield of 2.57%.
PNC Financial (PNC) raised its quarterly dividends by 6.30% to $1.70/share. This is the 15th year of consecutive annual dividend increases over this dividend achiever. The company has managed to grow dividends at an annualized rate of 8.40% over the past five years.
The company has managed to grow earnings from $7.52/share in 2015 to $13.77/share in 2024.
The company is expected to earn $15.13/share in 2025.
The stock sells for 13 times forward earnings and a dividend yield of 3.26%.
State Strett (STT) raised its quarterly dividend by 11% to $0.84/share. This is the 15th year of consecutive annual dividend increases over this dividend achiever. The company has managed to grow dividends at an annualized rate of 8% over the past five years.
The company has managed to grow earnings from $4.53/share in 2015 to $8.34/share in 2024.
The company is expected to earn $9.58/share in 2025.
The stock sells for 11.50 times forward earnings and a dividend yield of 2.76%.
U.S. Bancorp (USB) raised its quarterly dividend by 4% to $0.52/share. This is the 15th year of consecutive annual dividend increases over this dividend achiever. The company has managed to grow dividends at an annualized rate of 5.20% over the past five years.
The company has managed to grow earnings from $3.18/share in 2015 to $3.79/share in 2024.
The company is expected to earn $4.04/share in 2025.
The stock sells for 11.76 times forward earnings and a dividend yield of 4.17%.
Relevant Articles:
- Three Dividend Growth Companies Raising Dividends Last Week
