Friday, October 2, 2009

The return of the financial dividends

The financial crisis lead to dividend cuts amongst several prominent dividend payers such as Bank of America (BAC), US Bancorp (USB) and BB&T Corp. (BBT). Over the past few weeks however, several financial companies announced that they might reconsider their current dividend policies and start raising distributions in the near future.

US Bancorp’s (USB) CEO is reviewing the company’s dividend payout, after it paid off $6.6 billion in TARP money back to the US Treasury."You will see us take action in the near-term that will be favorable," to the dividend, the company’s CEO said. The company cut dividends in March by 88% and is currently paying a quarterly dividend of 5 cents/share.

BB&T’s (BBT) President and CEO Kelly King informed shareholders the bank will "revist dividend level as soon as appropriate". The company cut its dividend by 68% in May 2009 in order to be able to repay the US Treasury. In addition to that the Winston-Salem, North Calorila based banking institution sold $1.5 billion in stock.

JP Morgan’s (JPM) CFO was a little less optimistic about the future dividend prospects of his company, citing that the company’s goal is to restore dividend only if economy doesn't "double dip". Despite the fact that he is still cautious on restoring the dividend, the CFO said the bank could raise its dividend to $0.75-$1.00/share. The company cut its dividend by 87% to 5 cents/share in February 2009.

Analysts are also expecting Pfizer (PFE) to increase dividends as well in the near future. Deutsche Bank analysts expect Pfizer Inc to increase its dividend in December. Deutsche Bank sees an increase of 15 percent to 25 percent. Pfizer cut its dividend by 50% in January in an effort to conserve cash in order to pay for its acquisition of Wyeth (WYE).

While I am generally very skeptical about companies which cut distributions, I view companies that begin raising distributions within a year of the cut very positively. It is too early to get excited about the companies listed above however. As long as they fail to actually increase distributions by sending bigger checks to shareholders, then the prospect of them raising dividends is a pure speculation.

Full disclosure: None

- BB&T Corporation (BBT) Stock Dividend Analysis
- Should you sell after a dividend cut?
- Is Pfizer (PFE) a value trap for investors?
- US Bancorp (USB) cuts its dividend by 88%

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