ETFs Set to Benefit as Bank Dividends Rise

At the time of that Bloomberg report, those stocks combined for over 10% of XLF’s weight. XLF’s current dividend yield of 1.77% is nothing to swoon over, but the ETF’s payout is on the rise. XLF paid a dividend of about 32 cents per share last year, up from roughly 29 cents in 2012 and 23 cents in 2011, according to State Street data.

Markit is also forecasting dividend increases from Comerica, Discover, KeyCorp, Huntington Bancshares, SunTrust and Bank of New York Mellon. The research firm also sees double-digit payout increases from Dow components J.P. Morgan Chase (NYSE: JPM)and American Express (NYSE: AXP), a combined 11.4% of XLF’s weight.

“The 23 banks mentioned in this report account for nearly 62% of XLF. The top five holdings alone exceed 41% of XLF. The projected 400% increases in Bank of America and Citigroup’s dividends alone will be major drivers for XLF’s dividends. Increases from the CCAR banks are expected to boost XLF’s Q2 dividend 25% compared to Q1. This compares to an 18.1% increase in Q2 dividends projected for SPY, the SPDR S&P 500 ETF (NYSEArca: SPY),” according to Markit.

The $2.2 billion SPDR S&P Bank ETF (NYSEArca: KBE) does offer some exposure to CCAR dividend hikes, but as an equal weight ETF, the fund’s potency on the dividend increase fund is somewhat diminished. [Regional Bank ETFs Rally]

“In contrast to XLF, the SPDR KBW Bank ETF (KBE) has a much lower impact from the large banks. CCAR banks account for just 26.4% of KBE. Only two CCAR banks, Huntington Bancshares and Regions Financial, are in the top 5 of KBE’s holdings. Accordingly, expectations for dividend growth are lower for KBE than XLF. We currently project an 18% increase in KBE’s Q2 dividend, compared to 25% for XLF,” said Markit.

The PowerShares KBW Bank Portfolio (NYSEArca: KBWB) is another option to consider. In fact, the fund has previously been highlighted as a valid play on bank dividend growth. [ETFs for Banks Returning Capital to Shareholders]

The $164.4 million ETF allocates over 38% of its combined weight to Bank of America, J.P. Morgan Chase, Citigroup, Comerica, Regions and Zions.

Data Table Courtesy: Markit


Tom Lydon’s clients own shares of American Express and Regions.