Investors Welcome Banks' Plans To Boost Dividend Payments

Friday, January 14, 2011 06:37
Investors Welcome Banks' Plans To Boost Dividend Payments

As JP Morgan Chase & Co. kicks off the earnings season for U.S. banks today, all eyes will be on news about the company’s dividend payment plans.

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Analysts say U.S. banks will resume meaningful dividend payments this year after a two-year drought forced by the global economic crisis.

Earlier this week, JP Morgan CEO Jamie Dimon told investors and analysts the bank could start paying higher dividends in the second quarter, pending approval by the Federal Reserve Bank. He said the bank might increase its annual dividend from 20 cents a share to up to $1.

Other banks are expected to follow suit as their bottom lines have strengthened faster than expected after the federal government stepped in to shore them up during the depths of the economic crisis. Here is a preview of upcoming earnings reports by major U.S. banks.

The loss of dividend payments was a major blow to many investors over the last two years, and its return would be welcome for those who depend on what was once a reliable source of income.

Boosting dividend payments probably will not result in significant jumps in stock prices, though, because dividend increases are expected and already built in to pricing, analysts say.

And banks continue to face major issues that could keep dividend increases to a minimum, including high foreclosure rates, slow growth in loan rates and continued low interest rates. Due to these and other factors, banks are expected to raise their dividends in stages, beginning with small increases in the second quarter and continuing to boost payments each quarter.

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