Chris Lange
8 min read
Quick Read
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PNC lifted its quarterly dividend 18% to $2/share after stress tests; Truist leads the group with a 4.5% yield and only a 47.8% payout ratio.
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Citigroup carries the lowest yield at 2% but the strongest coverage, paying out just 26% of earnings with a CET1 ratio of 12.8%.
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All five banks hold capital well above regulatory minimums and pay out less than half of earnings, building a buffer to sustain dividends through a credit downturn.
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Bank stocks deserve a fresh look as the income portion of a retirement portfolio, and the reason is coverage more than yield. Large lenders came out of the Federal Reserve’s stress tests raising payouts from a position of strength. PNC Financial Services (NYSE:PNC) set the tone by lifting its quarterly dividend 18% to $2 per share. The five banks below are judged on what actually protects the check.
First is the earnings payout ratio, meaning the share of profits paid out as dividends. Free cash flow tells you little at a bank because every loan and deposit moves the cash flow statement. Second is the CET1 ratio, a bank’s core capital cushion measured against its loans and securities, which regulators require to stay above a set floor. Third is credit quality: how much of the loan book is going bad.
Truist Financial
Truist Financial (NYSE:TFC) has the highest yield in this group at 4.5%. That comes from an annual dividend of $2.08 per share and a share price of $46.13. The payout uses about 47.8% of trailing earnings of $4.35 per share, so more than half of profits are left over for loan growth, losses and buybacks.
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Capital is the stronger part of the safety case. Truist’s CET1 ratio rose to 10.9% in the second quarter, even though the bank returned more than 100% of earnings through buybacks and dividends. Management called that total payout “appropriate, given our capital position.” Credit also improved, with net charge-offs falling to 0.50% from 0.61%. Second-quarter EPS of $1.23 beat the $1.08 consensus. On track record, the quarterly dividend has held at $0.52 since the 2022-08-11 ex-dividend date. That followed raises from $0.45 to $0.48 and then to $0.52.
