Bank shares used to be a reliable source of dividends, but following the global financial crisis, the Fed and other bank regulators put the brakes on the payout ratio of America’s biggest banks. Today, the payout ratio on America’s big banks has a soft limit at 30%.
To get around the 30% payout limit of regulators, the big banks are now considering paying special dividends. The Wall Street Journal has the story.
Two of the nation’s most prominent bankers on Tuesday hinted at higher dividends in the future, especially if bank stocks keep rising. This is mostly welcome news for investors, though it may also signal that bank stocks are no longer the steal they were just a few months ago.
Speaking at a Goldman Sachs financial conference, J.P. Morgan Chase Chief Executive James Dimon said that, at a certain price, buying back the firm’s shares may no longer be the best use of excess capital. Paying out more dividends, perhaps in the form of one-time special dividends, could start to make more sense, he said.
Mr. Dimon didn’t specify where the threshold is exactly, but indicated he looks at the ratio of price to tangible book value. J.P. Morgan’s price to tangible book ratio now stands at 1.65, according to FactSet, compared with 1.27 at the end of June.
Bank of America Chief Executive Brian Moynihan, speaking after Mr. Dimon at the same conference, also said special dividends might make more sense than buybacks at some point.
Jeremy Jones, CFA
Latest posts by Jeremy Jones, CFA (see all)
- Just Four Stocks Have Generated Half of the NASDAQ 100’s Gains in April - April 24, 2019
- Will Every Recession Now Demand Extraordinary Fed Intervention? - April 23, 2019
- IBM Plans to Make Great American Mainframes Again - April 22, 2019