Citigroup And Bank Of America Token Dividend
Thursday, March 24, 2022 12:00 PM

This week both Bank of America (NYSE: BAC) and Citigroup (NYSE: C) made announcements concerning future dividend payments at a rate of one cent per share. Neither piece of news was especially positive and these two major banks are still significantly dictated to by banking regulators.

Bank of America has been paying the one cent quarterly payout since the first quarter of 2009. Bank management recently asked the Federal Reserve for permission to make a modest increase in the payout. The request was rejected and the one cent dividend will stay in force for the foreseeable future. No reason was given for the rejection and Bank of America management indicated the company would again seek approval for a payout increase in the second half of the year.

Citi announced the company will resume paying a common stock dividend, with a one cent payout for the second quarter. Before the dividend payment, Citi will complete a 10 for 1 reverse stock split. The penny dividend will be on the new higher priced shares. Shareholders will not be receiving the equivalent of a 10 cent per share dividend due to the reverse split. The new dividend is actually a one cent per year payout based on the current share value.

The major banks weathered the financial crisis of 2007 – 2009 with significant amounts of bailout money from the Federal Reserve. Now the Fed keeps a much closer eye on the financial situation of each of the major money center banks plus others that required federal money to stay solvent. The regulators require the banks to pass additional “stress tests” to ensure adequate levels of capital. Allowing Bank of America and Citigroup to pay a token dividend is an indication the financial health of these banks is improving, but the feds still think they have a long way to go.

Competitor banks JP Morgan Chase and Wells Fargo declared dividend increases last Friday, separating themselves as banks in better financial shape than Citigroup and Bank of America. One positive aspect of a common stock dividend of any size is the payout put further insurance on the continued payment of preferred share dividends. Preferred stock dividends must be paid before a common stock distribution.

BAC shares have shed 4 percent of their value in the first three plus an hour trading sessions this week. The news of the reverse split has not helped Citigroup, and C is trading two percent below where it closed on Friday, March 18. For investors, there are certainly more attractive investment candidates in the financial service sector than Bank of America and Citigroup. Maybe the banks capital structures will improve enough by 2012 to get the feds off their backs.