Financial sector exchange traded funds could generate greater value for share holders after big banks passed the Federal Reserve’s stress test, and plan stock buybacks and dividend hikes.

The banking sector is lifting financials, with the iShares US Broker-Dealers ETF (NYSEArca: IAI) up 1.2%, PowerShares KBW Bank Portfolio (NYSEArca: KBWB) 1.7% higher and Financial Select Sector SPDR (NYSEArca: XLF) gaining 1.6% on Thursday. [Financial ETFs Could Bank on Positive Dividend News]

The financial sector has been lagging behind the broader market for years after the Fed forced banks to raise capital requirements in an attempt to obviate or at least diminish the effects of another financial crisis. Consequently, many banks were forced to cut back on value producing strategies for shareholders.

However, now that the majority of banks passed the Fed’s second round of stress tests, many will be raising dividends and share repurchases. For instance, Citibank (NYSE: C), which failed to pass the stress tests last year, is set to raise its dividends by 400% to 5 cents after offering a token 1 cent dividend over the past year. Citi is also planning $7.8 billion in stock buybacks, the Wall Street Journal reports.

Other banks are also increasing dividends, including Morgan Stanley (NYSE: MS) by 50%, Regions Financial (NYSE: RF) by 20%, Discover Financial (NYSE: DFS) by 17%, State Street (NYSE: STT) by 13%, BB&T (NYSE: BBT) by 12.5%, American Express (NYSE: AXP) by 12%, JPMorgan (NYSE: JPM) by 10% and Goldman Sachs (NYSE: GS) by 8%, among others.

Additionally, banks were planning stock buybacks, including $6.6 billion from American Express, $6.4 billion from JPMorgan and $4 billion from Bank of America (NYSE: BAC), among others.

However, Goldman Sachs, JPMorgan Chase and Morgan Stanley had to alter their planned payouts to investors to receive a passing grade from the Fed, The New York Times reports.

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