Gad: Financial Names Set for a Boost

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The coming week will be critical for big banks and investors should take note. Today, the Federal Reserve will release its annual report on U.S. banks' health as prescribed by Dodd-Frank. Based on those results, on March 26, the Fed will tell banks how much they can return to shareholders via dividends and stock buybacks.

Expect the news to be favorable. As a result, dividends from the biggest banks are set to surge. That could likely lead to an upward move in the stock price in the coming months. And dividend increases will be substantial. Analysts expect the dividend payout ratio to increase from 24% of net income to 26% of net income. Still, despite the increase, the payout ratio remains well below the 44% level that occurred during the year ending March 31, 2009. But that just illustrates the continued increase in dividend payouts that could continue years to come.

I have said for a while now that owning these financials today continues to remain a good choice. And one of my favorite picks still remains Bank of America (BAC). In the past, Bank of America's plan to increase its dividend has been rejected by the Fed. But Bank of America continues to get healthier: Its Tier 1 common ratio, a key metric the Fed uses to gauge financial health, increased to 10% as of year-end 2013, up from 9.3% in the prior year.

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