Banks Are Opening Up Their Coffers

Fellow bank stock investors, we are finally about to be rewarded for our patience over the last year and a half. Banks are about to start paying cash back to shareholders.The big banks are going to raise their dividends starting in 2011.

I didn’t own any bank stocks before the huge financial crisis. I used the collapse in the banking sector to pick up shares of Bank of America (BAC), Wells Fargo (WFC), and JPMorgan Chase (JPM). I felt that these stocks were trading at valuations that were just too low to pass up. It turned out that I was right and have been able to buy some of the country’s best banks at pennies on the dollars.

That’s just the start! According to an article in The Street.com, Wells Fargo (WFC), US Bancorp (USB), JPMorgan Chase(JPM), PNC Financial (PNC) are all set to boost their dividends starting next year. Some of the banks will have dividend payout ratios that represent 30% of earnings. This is much lower than the historical averages but it is something. The 1 cent per share dividend that BofA is currently paying me doesn’t count.

Anyone who is a regular reader of this blog knows that I am extremely bullish on the financial sector for the next few years. The worst of the crisis is over and many banks valuations do not reflect their earnings potential. As dividends start flowing in the sector, dividend investors and fund managers will start buying up shares of bank stocks for their income potential.

Disclosure: I do own shares of Bank of America, Wells Fargo, and JP Morgan Chase.

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