Results from the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) will pave the way for major U.S. banks to deliver higher dividends to investors, meaning yields on the financial services sector are expected to climb.

That could increase the allure of exchange traded funds, such as the SPDR S&P Bank ETF (NYSEArca: KBE). KBE and other big bank and financial services ETFs currently yield in the area of 2%, comparable to the yield on 10-year Treasuries.

“Financial firms in the S&P 500 were recently yielding 2.08%, compared with 1.69% in mid-2017. Among the 11 sectors in the index, that’s the second-largest jump in yield over that two-year stretch,” reports Lawrence Strauss for Barron’s.

The Financial Select Sector SPDR (NYSEArca: XLF), the largest financial services ETF, recently yielded just over 2%. KBE has a dividend yield of just 2.11%, while XLF, the largest financial services ETF, yields just 2.02%. In either case, both funds’ components have plenty of room to boost dividends in significant fashion. It is widely expected major banks will engage in significant share repurchase efforts.

Higher Yields For Positive Reasons

Typically, stocks’ dividend yields rise because the prices are falling, but that is not necessarily going to be the case with bank stocks and ETFs such as KBE.

“The financials haven’t done all that badly over that two-year period. The S&P 500 Financial Sector index has gained more than 12% during the past two years, while the S&P 500 has climbed 23%,” according to Barron’s.

Following the CCAR, results, J.P. Morgan Chase raised dividend by 13% to 90 cents a share from 80 cents a share and said it can repurchase up to $29.4 billion in stocks, compared to $20.7 billion last year. Bank of America hiked up its dividend to 18 cents a share from 15 cents and could repurchase up to $30.9 billion in stock. Wells Fargo lifted dividend to 51 cents a share from 45 cents and can buy back $23.1 billion in shares.

“Among the very largest U.S. banks, JPMorgan Chase (JPM) yields 2.8%, Bank of America (BAC) 2.1%, Citigroup (C) 2.5% and Wells Fargo (WFC) 3.8%,” notes Barron’s.

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