Biggest banks are about to return billions to investors

The nation’s largest banks all received passing grades during this year’s stress tests, clearing the way for the banks to make huge cash payouts to investors.

This was the first time since the tests began seven years ago that all 34 banks that were examined passed. As a result, nearly all are expected to return more cash to shareholders by increasing dividends or buying back stock, which could boost the value of remaining shares.

In total, financial firms are set to return more than $130 billion to investors over the next four quarters, up 38 percent from the previous four quarters, according to Barclays Capital.

Citigroup, for example, said that it plans to double its quarterly dividend to 32 cents a share and that it will repurchase up to $15.6 billion in shares over the next year. Bank of America said it plans to raise its quarterly stock dividend by 60 percent to 12 cents a share, and Ally Financial said it would increase its dividend by 50 percent, also to 12 cents a share.

Many banks slashed their dividends after the financial crisis as a way to preserve capital, Todd Rosenbluth, director of mutual fund research for CFRA Research, wrote in a report published this past week. But with the latest dividend increases, bank stocks are once again providing more generous income streams for investors, he wrote.

People who own bank stocks directly or through a basket of stocks in a mutual fund will benefit from the recent changes, Rosenbluth noted. For example, mutual funds or exchange-traded funds that track the Standard & Poor’s 500-stock index invest in bank stocks and are likely to see a boost from the bigger dividends.

Since 2011, the Federal Reserve has conducted annual tests on the country’s biggest banks to assess how well they would handle another financial meltdown. The exam measures how much capital banks have on hand and how their revenue and losses would be affected by an economic slowdown.

All 34 banks passed the quantitative portion of the stress tests earlier last month, and only 13 were also required to pass the qualitative tests, the results of which were announced last week.