Morningstar's Davis: 3 Banks That Can Boost Dividend Payouts

Thursday, 14 Aug 2014 09:24 PM

By Dan Weil

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Banks' dividend distributions collapsed after the financial crisis of 2008. But now they're on the rebound, as financial institutions clean up their balance sheets and grow more profitable.

"I think that we'll see a lot of increasing dividends in 2015 and in 2016," Morningstar bank analyst Erin Davis says on her firm's web site.

One company that can do so is Discover Financial Services, she says. Its current payout ratio is about 18 percent. "I think it's realistic to think that that could go up to 30 percent," Davis says.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

Discover's quarterly dividend currently totals 24 cents a share, for a yield of 1.6 percent.

In Europe, Lloyds Banking Group of the United Kingdom is poised to reinstate its dividend, and UBS, which has a yield of 1.4 percent, is poised to increase its dividend, Davis says.

"Both have been building capital and repairing their businesses a lot since the financial crisis, and I think we are going to see a lot of movement on their dividends in the next two years as well."

S&P Capital IQ analyst Erik Oja has a four-star (out of five) buy rating on Discover.

"Strong credit quality has allowed DFS more time to focus on strategy and business development and given it extra flexibility in marketing," he writes in a report. "Credit quality is the best it has been in more than 15 years, due to stricter credit standards applied during the recession."

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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