According to SNL Financial, 13 banks have increased common dividends declared by 4% or more for six consecutive calendar years. While the 2008 financial crisis is far in the rearview mirror, banks in general do not provide the dividend growth records that can be found in consumer staples or industrials.
For example, Vanguard Dividend Appreciation Index (VIG), an $18 billion ETF that holds companies that have raised dividends for at least ten consecutive years, has a 6% stake in financial services, compared to 26% and 21% in consumer staples and industrials, respectively.
Shareholders of diversified bank Comerica (CMA) saw dividends increase more than 300% from 2009 to 2015. The dividend, which was cut sharply in 2008 before the bank began a series of hikes, now pays an $0.84 per share annual dividend (2.2% yield). S&P Capital IQ Equity Analyst Erik Oja sees CMA as well-positioned, in the longer term, to grow lending in California (real estate), Michigan (autos) and in Texas (health care, partly offset by energy).
Oja highlighted that many large banks such as CMA must regularly submit capital plans under Dodd-Frank Act Stress Tests, which can limit their ability to return more money to shareholders. Generally, he noted large banks are discouraged by regulators from paying out more than 30% of normalized earnings.
According to research written by Kate Garber and Carolyn Duren of SNL, Missouri based UMB Financial Corp (UMBF) was another consistent dividend grower. The small-cap regional bank experienced 34% dividend growth during the last six years, ending 2015 with a $0.98 per share dividend; UMBF recently yielded 2.3% and also has an A- Quality Ranking.
S&P Capital IQ and SNL Financial are part of McGraw-Hill Financial.
UMBF and Comerica are both holdings in SPDR S&P Bank (KBE), an equally weighted financials ETF with $2.5 billion in assets. KBE has a 0.35% expense ratio and 1.7% 12-month yield. The ETF has a 0.35% expense ratio and trades 2.6 million shares on a daily basis with a penny bid/ask spread. The ETF gathered $63 million of fresh money in the fourth quarter of 2015, according to etf.com data.
We like KBE because of its, low costs, its liquidity and for its exposure to smaller-cap banks that we think are more likely to grow its dividends at a faster pace.