Bank of America said Wednesday that it will increase its dividend, the first time it has done so since the financial crisis.
The Charlotte bank will now pay 5 cents per share each quarter beginning in the second quarter of this year, up from a penny per share. Bank of America will also repurchase $4 billion in common stock, a move that increases its earnings per share.
“Over the last few years we have focused on positioning the company to return capital to our shareholders,” CEO Brian Moynihan said in a statement. “We know that increasing the common dividend is important to our shareholders and we are pleased that we can continue to return excess capital through both repurchases and dividends.”
The news came shortly after the Federal Reserve announced it had no objections to Bank of America’s plans.
Wells Fargo, BB&T and 22 other banks also got approval from the Federal Reserve on their capital plans.
Wells Fargo will increase its dividend to 35 cents per quarter, up from 30 cents. The San Francisco bank will also repurchase about 350 million shares of common stock.
BB&T said Wednesday that its plans include a “conservative increase” of its quarterly dividend for common shareholders.
Five banks, including Citigroup and HSBC, had their capital plans rejected. That means they won’t be able to increase their dividends or stock buyback programs, Federal Reserve officials said. This is the fourth year in which the nation’s big banks have had to seek approval to return capital to shareholders through this process.
The dividend increase comes a week after the Federal Reserve released the results of its annual stress tests, which test the nation’s largest banks on whether they’d be able to keep minimum capital ratios in the event of a severe economic downturn.
Bank of America passed the stress test, but its capital levels came in lower than many of its peers. Based on the results, analysts had said the bank’s capital plans might be thrown into question.
Indeed, Bank of America was forced to resubmit its capital plan after some ratios fell below what is required in a severely adverse downturn, the Federal Reserve said Wednesday. The bank had to revise down the level of capital it would return to shareholders. Goldman Sachs also had to revise and resubmit its capital plan.
Still, Bank of America’s ultimate decision on its dividend was in line with analysts’ expectations.
Guggenheim Securities analyst Marty Mosby said the Federal Reserve’s results indicate Bank of America will have to increase its dividend more slowly than it would like in the years to come.
“I think they had a rosier picture,” Mosby said. “There’s a little bit of a limit on how fast they can increase (capital) deployment. You’re going to have to increase your capital position in order to get some more room.”
Wednesday’s decision is the first dividend change since 2009.
As recently as mid-2008, Bank of America’s quarterly dividend paid out 64 cents per share. That quickly plummeted to 1 cent per share as the financial crisis unfolded, and big banks such as Bank of America were propped up with billions in capital from the federal government.
Peers such as JPMorgan Chase and Wells Fargo didn’t drop their dividends as dramatically in the aftermath of the crisis and received the go-ahead to increase their payouts three years ago.
CEO Moynihan famously told investors in 2011 that Bank of America would likely raise dividends by the end of that year. The Federal Reserve ultimately rejected the bank’s request.
Bank of America’s dividend has been a regular bone of contention ever since. Shareholders during the bank’s past two annual meetings in Charlotte have repeatedly questioned Moynihan about when it would rise.
Wednesday’s dividend announcement likely won’t please all of them.
“Five cents a quarter is still not sufficient,” said Stephen Johnson, a Greensboro applied psychologist who has filed shareholder proposals with the bank in the past. “It is good news, but this is also a bank that should have done better for the last decade.”
Bank of America shares closed Wednesday at $17.18, well less than the $50 range in which it traded 2006 and 2007.