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Banks Showing Some Dividend Potential

NEW YORK ( TheStreet) -- The dividend -- long one of the prime reasons to purchase a bank stock -- is showing signs of making a comeback in the sector.

Whether it's because of savvy strategy or the impact of an improved economy on the bottom line, a number of banks and other financial companies are once again starting to see dividend payments as an attractive use of capital. Even some firms that have only recently shed their bailout shackles are looking to boost payouts again.

Visa (V - Get Report), which never accepted bailout funds, this week became the first major financial firm to boost its dividend, lifting its quarterly payout to 12.5 cents a share from 10.5 cents. Bailout recipients JPMorgan Chase (JPM - Get Report), U.S. Bancorp (USB - Get Report) and State Street (STT - Get Report) all recently indicated a desire to lift quarterly distributions as well, after having cut them dramatically over the past year or so. A key factor holding them back is the promise of more stringent regulatory capital requirements, although when the Federal Reserve will unveil those standards, or what the extent of those standards will be, remains unclear.

>>TARP Weighs on Dividends: Slide Show

"When a bank is going to start increasing their dividends, first and foremost it's because they're generating income," says Russ Yates, an analyst with SNL Financial. But, he adds, "why a lot of these banks suspended dividends or greatly reduced them is because of what's coming about with this regulatory reform. Everybody thinks there's going to be higher capital requirements in the future, but nobody knows exactly what the higher capital requirements will be."
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