The Joplin Globe, Joplin, MO

Business

May 7, 2012

Banks of all sizes begin to boost dividends

HACKENSACK, N.J. — Big banks such as JP Morgan Chase and Wells Fargo are raising their dividends, a welcome sign of recovery in a besmirched industry, and smaller publicly traded banks also are spreading the increased profits around.

Provident Financial Services Inc., which reported last month that its first-quarter earnings rose 43 percent, has lifted its quarterly cash dividend to 13 cents a share from 12 cents. Oritani Financial Corp. recently said it would raise its dividend to 15 cents from 12  1/2 cents, and pay out $1.15 million for the quarter.

“We had very strong earnings and no need to retain the earnings because we have excess capital already,” said Kevin Lynch, chief executive officer of Washington Township, N.J.-based Oritani. “Our shareholders appreciate it.”

The bankers say their boards have gained confidence in the slowly improving economy and are more open to raising dividends as long as earnings and asset quality improve. Banks, like utilities, are known as steady payers of dividends, and the industry’s recent partial recovery in the stock market has been driven in part by the lure of dividends with yields higher than the interest rates on bank deposits and taxed at 15 percent, below regular income.

“There continues to be a growing trend among investors for dividend-paying stocks,” Rick Weiss, bank analyst at Janney Capital Markets, wrote in a first-quarter bank earnings preview.

Dividend investing has been on the rise across most sectors, according to the research firm Five Star Equities. Stocks that pay dividends gained 8.3 percent last year versus 2.1 percent for the Standard & Poor’s 500 Index. This year, S&P 500 companies are on pace to pay out a record $277 million in dividends, the firm said.

“Seniors and people living on fixed incomes are looking for returns to live off of,” said Christopher Martin, chief executive officer of Jersey City, N.J.-based Provident Financial. “Where they used to be able to do that with money in the bank, now they have to reach out to the equity market.”

Being perceived by investors as a dividend-payer is “essential,” said Thomas Shara, chief executive officer of Lakeland Bancorp. “It gives our shareholders comfort that we have the ability to pay the dividend and increase the dividend. It’s a positive statement,” he said. “Investors, especially retail investors, like the additional return, as well as the principal appreciation.”

Oak Ridge, N.J.-based Lakeland raised its quarterly cash dividend by a penny last year after cutting it in half during the recession — when it had also suspended its annual 5 percent stock dividend. Lakeland recently announced a 5 percent stock dividend and quarterly cash dividend of 6 cents a share. The cash dividend was 10 cents before the financial crisis, he said. “There is still a ways to go to get to the pre-crisis level,” Shara said.

While many companies’ dividend yields have become more attractive, investing in stocks is still not as safe as putting money in an insured bank account. If the stock price declines, investors can lose some of their principal, and if the company becomes insolvent they can lose it all.

 

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