ETFs for Banks Returning Capital

The financial services sector has been one of the strongest drivers of S&P 500 dividend growth over the past several years. However, dividends on many major bank stocks, like the stocks themselves and the exchange traded funds that hold those equities, are still nowhere close to their pre-crisis highs.

That is to say dividend growth in the financial services sector, once a mecca for income investors, is coming off a low base and has a long way to go to get back to the levels seen in 2006. [10 ETFs Still not Close to Pre-Crisis Highs]

Plans by major U.S. banks for the Federal Reserve’s Comprehensive Capital Analysis and Review are due in early January with the central bank slated to release the results at the end of the first quarter and, as in recent years, the Fed will be judge and jury regarding the capital returns overtures of many large U.S. banks.

Keefe, Bruyette & Woods expects several banks to show capital return increases of 50% or better next year. In order of percentage increases, the research firm expects Citigroup (NYSE: C), M&T Bank (NYSE: MTB), Capital One (NYSE: COF), Bank of America (NYSE: BAC), PNC Financial (NYSE: PNC), SunTrust (NYSE: STI), Wells Fargo (NYSE: WFC) and BB&T (NYSE: BBT) to return capital to shareholders at improved rates next year.

KBW forecasts net capital return by Fifth Thid (NasdaqGM: FITB), Regions Financial (NYSE: RF), Zions (NasdaqGM: ZION), KeyCorp (NYSE: KEY) and Goldman Sachs (NYSE: GS) to decline modestly next year, according to a note from the firm.

KBW also expects seven big banks will be approved for the sector’s highest payout ratios and that group is comprised of State Street (NYSE: STT), Goldman Sachs, KeyCorp, U.S. Bancorp (NYSE: USB), Comerica (NYSE: CMA), Discover Financial (NYSE: DFS) and American Express. “These seven banks are expected to payout roughly 83% of earnings through dividends and net share repurchases,” according to KBW.