Big banks continue to struggle and rely on TARP funds to prop them up. Last week Bank of America (BAC) reported a net loss of $0.48 per share for the fourth quarter, well below the consensus of an $0.08 profit. Merrill Lynch's preliminary results indicate a fourth quarter loss of $15 billion due to the turmoil in the capital markets. The U.S. government agreed to provide BAC an additional $20 billion to assist in the Merrill acquisition. In addition, the government has agreed to provide BAC protection against certain losses on $118 billion in selected capital markets.
The TARP money comes with strings. One of which is a reduction of common dividends. BAC declared a first-quarter dividend of $.01 per share. The company's previous two dividends were $0.32 and $0.64 per share. Not to be out done, Citigroup (C) declared a quarterly dividend on the company's common stock of $0.01 per share. Its last two dividends were $0.16 and $0.32 per share.
Tuesday, concern spread to Wells Fargo (WFC) after analysts at Friedman Billings Ramsey said Wells Fargo will likely cut its dividend in the first half of the year because the bank needs to conserve cash. That resulted in a 20% drop in its share price. Then yesterday, SunTrust Banks, Inc. (STI) reported a fourth quarter loss of $1.08 per share and reduced its quarterly dividend from $0.54 to $0.10 per share.
While the big banks are taking government funds and slashing dividends, here are some smaller banks standing strong by raising dividends:
Today's market has been challenging to even the most seasoned investors. Dividend stocks provide an opportunity for long-term growth and income if we follow a few simple rules.
Disclosure: No position in the aforementioned securities.
(Photo: Steve Woods)
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If banks hold dividend for a year or two count yourself lucky, it'll be a wash over 50 years. Here in the UK the danger is nationalisation. Two have already gone (weak smaller players) but rumours of more government takeovers drove down the price of all but the strongest this week. Dividends from all but HSBC (largest bank in the world now) and Standard Chartered (Asian specialist) are a dream of yesteryear.
It's incredible how the most solid of investments became the most shaky in the space of 18 months...
Monevator: Agreed, just 18 months ago banks looked like a solid investment. It pays to be diversified.
Best Wishes,
D4L