This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Banks Heading Into Dividend Sweet Spot: KBW

A big part of investors' fear over the Fiscal Cliff is the probably expiration of the 15% maximum federal income tax rate on qualified dividend income. If we "fall off the cliff" with no deal between President Obama and the Republican leadership of the House of Representatives, dividends will be taxed as ordinary income. This will obviously be very painful for upper income taxpayers, but it will be just as painful for lower-income investors, who are currently paying no federal taxes on qualified dividend income, if their adjusted gross income keeps them within the 15% tax bracket.

Many companies are paying special dividends before the end of the year, and some have accelerated the payment of dividends to the fourth quarter, for obvious reasons.

Cannon said that "even with higher tax rates on dividends, we believe that high dividend yields will continue to attract investors," because a "significant portion" of equity investments are in tax-deferred retirement funds, because "bond yields are depressed due to Federal Reserve policy," and because "the tax rate on dividends will likely be lower than on ordinary income under most Fiscal Cliff resolution scenarios."

According to KBW's list of "dividend growers" among large-cap financial stocks, Citigroup (C - Get Report) will see the greatest increase in dividend payout next year. The bank is currently paying a nominal quarterly dividend of a penny a share. Cannon expects this to increase to a 25-cent dividend late in the first quarter, for a 2013 yield of 2.7%.

Citigroup took a major step last week to cut expenses, announcing 11,000 layoffs and the closure of 84 branches, which will result in $1 billion in fourth-quarter charge-offs, but also is expected to save the company $900 million in 2013, with expense savings reaching $1.1 billion in 2014. The company said that the cuts would cause a decline in revenue of a relatively small $300 million.

On Cannon's list of "Large-Cap, High Yield Stocks with Growing Dividends," PNC Financial Services Group (PNC - Get Report) ranks second, after JPMorgan, with a dividend yield expected to climb to 3.58%. PNC is currently paying a quarterly dividend of 40 cents, for a yield of 2.87%, based on Friday's close at $55.80. Cannon expects the company to pay out two dollars a share in 2013.

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
CIM $3.19 0.00%
JPM $62.00 0.00%
PNC $92.54 0.00%
C $53.56 0.00%
FITB $19.31 0.00%

Markets

DOW 18,135.72 +38.82 0.21%
S&P 500 2,101.04 +2.51 0.12%
NASDAQ 4,982.8090 +15.6680 0.32%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs