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Bank of America, JPMorgan, Goldman Sachs Set For Dividend Growth?

3d illustration of dollar banknote built from cube blocks

Income-oriented investors can keep an eye on big banks including Bank of America (NYSE: BAC), JPMorgan Chase & Co. (NYSE: JPM) and Goldman Sachs Group Inc. (NYSE: GS), to see whether they opted to boost dividends, following sunny results of the Federal Reserve’s banking stress tests.

On the heels of the March crisis that affected regional banks, which seems like a distant memory, some analysts and investors were concerned that even bigger banks may not have the capital reserves to make it through another 2008-style financial meltdown or severe recession. 

It’s worth noting: Those tests, implemented in 2009, are limited to the risks inherent in the 2008 situation. They don’t address the series of events that caused Silicon Valley Bank’s collapse (although as a smaller, regional bank, it wasn’t subject to those tests). In that instance, stubbornly high inflation caused rates to spike, meaning banks had to pay depositors more just as Treasury bonds declined in value.

The Fed’s stress tests aren’t set up for that scenario, which had some analysts worried, but as it turned out, all 23 big banks that are subject to the stress tests passed. 

The news catapulted the financial sector into the lead on June 29 trade, with the Financial Select Sector SPDR Fund (NYSEARCA: XLF) gapped up at the open, ending the session with a gain of 1.70%, the best performance among 11 sector ETFs. 

Dividends are now the focus of the big banks. The Fed had asked banks to wait two days after the stress tests to reveal any plans for deploying capital, including dividends. Watch for announcements after the close of trading on June 30. 

Here’s a look at three big banks that analysts believe may be primed for shareholder payout increases, now that the stress tests are behind them. 

Bank of America

Bank of America shares gapped 2.10% higher on June 29, finishing at $28.66 in heavy volume.

MarketBeat’s Bank of America dividend data shows a yield of 3.07% and an annual dividend of $0.88 per share. The company has a history of increasing dividends, so it’s not unreasonable to expect that trend to continue. 

In the first quarter of this year, Bank of America returned $4 billion to shareholders through dividends and share repurchases. Its combined dividend and share repurchase buyback yield is 5.21%. 

Like pretty much all bank stocks, Bank of America took a hit due to the regional bank failures in March. However, with profit and revenue continuing to grow, this could be something for dividend investors to research.

JPMorgan Chase 

The largest bank within the financials sector, by market cap, JPMorgan Chase has kept its quarterly dividend at $1 per share since the quarter ended in September 2021. With earnings growth accelerating in the past two quarters, coming in at 37% most recently, it could be time for that payout to increase. 

JPMorgan Chase’s dividend yield is 2.79%, and the stock has an annualized dividend growth rate of 5.57%, despite the 19-month pause in increases. 

Revenue, too, has been accelerating, and grew at a rate of 25% most recently. That’s one of the reasons the stock has been outperforming other big financials. The JPMorgan Chase chart shows a flat base that’s been forming since early May, with a buy point north of $143.37. 

Goldman Sachs

Analysts expect that Goldman Sachs may increase its dividend by $0.25, to $2.75 a share. 

The Goldman Sachs Group dividend yield is currently 3.10%. The company last increased its dividend in August 2022. It has a two-year track record of boosting its payout, following a pause when it kept the dividend at $1.25 for eight quarters in a row, between August 2019 and April 2021. 

Revenue growth accelerated in the past two quarters, and analysts expect earnings growth to rebound this year dropping in 2022. The company recently said its custody business, whereby its brokerage holds funds for registered investment advisors, recently added $1 billion. Custodial firms bill according to basis points for the amount being held.

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