CCAR Approved Dividend Increases Incoming
The big news last week was the latest chapter of the Comprehensive Capital Analysis and Review (CCAR) or more commonly referred to as the stress test for banks.
CCAR came about via the Dodd-Frank Act in response to the financial crisis where the banking system pushed the economy to depths rivaling the Great Depression. Under the CCAR banks submit their capital structures to the Federal Reserve where they undergo stress tests to determine whether the banks have adequate capital to avoid the mess of a financial crisis 2.0.
In the bank's filings they also submit their planned capital distribution plans including dividends and share repurchases. If the Federal Reserve approves and the bank passes the stress test then investors will know what to expect when it comes to future capital return plans.
This past week the latest round of CCAR results were released and the majority of financial institutions were given the green light to proceed. However, there were 3 in particular, the ones that I own, that I was paying particularly close attention to: Bank of America (BAC), J.P. Morgan Chase (JPM) and Wells Fargo Corporation (WFC). All 3 passed with flying colors and were given approval to move forward with the capital distributions that they had submitted so barring something significant happening I can expect some hefty dividend increases officially coming my way next quarter.
The biggest increase of those 3 came from J.P. Morgan where they will raise the dividend from $0.56 all the way up to $0.80 per share per quarter. That's a huge 43% pay raise.
Bank of America came in second with a 25% increase bumping the per share payment from $0.12 to $0.15. Wells Fargo might have been the lowest of the 3, but I won't complain about a 10% raising the dividend from $0.39 to $0.43.
I own shares in these companies both my taxable accounts and my Roth IRA. The following table summarizes the increases as well as the changes to my forward dividends for each position.
In my FI Portfolio I own shares of Bank of America and Wells Fargo. With their expected dividend increases for Q3 my forward 12-month dividends will increase $28.22. In my Roth IRA I own shares of all 3 and my forward 12-month dividends increased by $40.27. Combined that's an extra $68.49 per year across the 2 accounts.
The blended yield between by FI Portfolio and Roth IRA is currently at 2.89%. To generate the same amount of forward dividends at the blended yield I would have needed to invest nearly $2,400 but instead it was just 3 companies rewarding me with higher payouts.
Share repurchases are also part of the CCAR and all 3 companies were granted approval for their respective buybacks.
Between the 3 companies that's over $65 B of approved repurchase authorization which is a pretty staggering amount considering it's over the next year.
Based on the closing share prices from this past Friday the 3 companies are authorized to repurchase between 6-9% of their respective shares outstanding. Of course those are subject to change as the share price is sure to move over the next year and I have my doubts that all 3 will fully max out the authorization amounts.
All in all I'm happy with the results although as always I would prefer the balance to be more towards dividends rather than share repurchases. The 3 banks that I own were given clean bills of financial health/stability and had their capital distribution plans approved by the Federal Reserve. That means higher dividend payments and likely share prices will be heading my way!
Do you own any of the major financial institutions? What other banks do you own that were given approval for dividend raises?