The results of the Federal Reserve’s annual Comprehensive Capital Analysis and Review (CCAR) program are expected to be revealed today and expectations are in place that some marquee banks will continue growing dividends and share repurchases.
It is also expected that some banks that have been laggards on the shareholder rewards front will finally get approval from the Fed to join the fun. Markit noted as much last month. [ETFs for Rising Bank Dividends]
“Markit believes average dividend growth in 2014 will be on par with 2013. The most significant changes are concentrated in three banks: Bank of America (BAC), Citigroup (NYSE: C), and Morgan Stanley (MS). Though trailing the group in recent years, these three appear poised for major dividend growth in 2014. Expectations for the remainder are more pedestrian, thanks to Fed guidelines discouraging payouts greater than 30%. Though payouts exceeding 30% are not explicitly prohibited, the Fed notes such actions would attract their increased attention. Because payouts across most banks already approach 30%, we have lower projections for banks outside the top five,” according to the research firm.
Should Bank of America and Citigroup finally emerge from dividend purgatory, several well-known financial services ETFs stand to benefit including marquee names such as the Financial Select Sector SPDR (XLF) and the Vanguard Financials ETF (VFH) .
XLF, the largest sector ETF by assets, allocates a combined 12.2% of its weight to BofA and Citi with another almost 17% going to Wells Fargo (WFC), one of the largest U.S. dividend payers in dollar terms, and J.P. Morgan Chase (JPM). VFH’s combined weight to those four stocks is almost 22%. [Fun With Financial Services ETFs]
Analysts are forecasting dividend growth from the aforementioned companies along with Capital One (COF), Zions (ZION), Regions Financial (RF) and SunTrust (STI), according to FactSet. The research firm expects per share payouts by financial services firms to jump more than 15% next year, Barron’s reports.
Although Utah-based Zions was the only one of 30 banks to fail the Fed’s stress tests, regional bank dividend growth is expected to be solid following the CCAR results. The The PowerShares KBW Bank Portfolio (KBWB) features an almost 3.9% weight to Zions.[Zions Stress Test Failure not Hurting These ETFs]
KBWB allocates a combined 46% of its weight to BofA, J.P. Morgan, Citi, Wells Fargo, Sun Trust , Regions and Zions, according to PowerShares data.
The iShares US Broker-Dealers ETF (IAI) has one of the more notable weights to Morgan Stanley at 6.3%, the same as the ETF allocates to Goldman Sachs (GS). Dividend growth would be appreciated by IAI shareholders as the ETF has a trailing 12-month yields of just 1.1%, but the fund was the best financial services in 2013 with a gain of almost 66%. [Broker Dealer ETF Rises With no Aide From Goldman]
Financial Select Sector SPDR