JPM, BAC, WFC: U.S. Banks Expected to Boost Dividends After Annual Stress Test

The biggest American banks are expected to boost their dividend payments once they pass the U.S. Federal Reserve’s annual stress test.

The stress test, conducted each summer, determines the health of major U.S. lenders such as JPMorgan Chase (JPM), Bank of America (BAC), and Wells Fargo (WFC) and determines whether they have ample capital to withstand a financial crisis and/or market shock.

The results of the latest stress test will be released by the U.S. central bank on June 27 and will show how much cash lenders need to hold to withstand a severe economic downturn. Most Wall Street analysts expect the banks to pass the test with flying colors, as they have done since the yearly exercise was introduced after the 2008-2009 financial crisis.

Dividend Increase

The big U.S. banks typically boost their dividend payouts to shareholder after the stress test is concluded and the amount of cash the lenders need to hold in reserve is finalized. Vivek Juneja, a top four-star rated analyst at JPMorgan Chase, expects the banks to increase their quarterly dividend payments by an average of 3% this year, and boost their stock buybacks.

The stress test for banks this year is expected to be less onerous than in previous years. And, the tests are expected to only become more manageable for banks going forward. This April, the U.S. Federal Reserve began a process to overhaul the annual stress test, which would include averaging results to reduce volatility and giving banks more visibility into how they are graded by the central bank.

Is JPM Stock a Buy?

The stock of JPMorgan Chase has a consensus Moderate Buy rating among 21 Wall Street analysts. That rating is based on 14 Buy and seven Hold recommendations issued in the last three months. The average JPM price target of $280.65 implies 2.05% upside from current levels.

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