US banks are free from their COVID shackles and once again raising dividends — with many announcing big shareholder payouts in the third quarter.
- Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) jumped 2% and 4% on the news.
What’s the big deal? Since the start of COVID, big banks were put under cash use restrictions — i.e. limiting dividend payments to investors.
After undergoing a successful “stress test” last week, which put these banks in hypothetical worst-case scenarios, they were given the go-ahead to increase investor payouts. During COVID, many of these banks hoarded big cash balances and now they’re ready to pay it forward.
The result: More than $2b extra dividends will be paid in the third quarter by 13 banks. Investment banks, which saw their profits soar in 2020 from increased deal activity, raised their dividends the most:
- Morgan Stanley doubled its dividend to 70c per share.
- Goldman Sachs increased its dividend by 60% to $2 per share.
But commercial banks, which had a more tamed 2020, weren’t as generous with their dividends: JPMorgan Chase (NYSE:JPM) raised by 11% and Bank of America raised by 16%.
Investors: The SPDR S&P 500 (NYSE:KBE) — an ETF with exposure to US banking — is up 25% this year, ahead of the 16% by the S&P 500. The banking sector is returning to a state of norm. Many of the big bank stocks are far above their pre-pandemic levels, and now they’re back to being boring, safe investments.
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