After the close on Thursday, the Federal Reserve announced the second stage results of its annual stress tests on the country's 18 largest banks. This is part of the Fed's Comprehensive Capital Analysis and Review tests, or commonly referred to as CCAR, which determine how much excess capital the banks are allowed to return to shareholders. In positive news, all 18 banks that were rigorously tested received passing grades, and that list includes three AAP names: Citigroup (C) , JP Morgan (JPM) , and Goldman Sachs (GS) . With the Fed's permission, the banks are then allowed to announce brand new capital return programs that will be initiated over the next four quarters, and many of these announcements were made Thursday after the closing bell.
Let's jump right into the good stuff, the new capital return programs.
Citigroup modestly increased its quarterly dividend payment to $0.51 from $0.45 which is good for a 13% increase. Using Citigroup's closing price as of June 27th, the forward dividend yield will be pushed up to 2.99% from 2.64%. On the share repurchase side, the company announced a new program worth up to $17.5 billion over the next four quarters. In total, Citigroup's planned capital actions over the next four quarters will be worth $21.5 billion, and that's slightly down from 2018's $22 billion announcement but is somewhat expected considering the massive amount of total capital Citigroup has returned over the past few years. As evidence that Citigroup has delivered according to plan, this capital return announcement successfully achieves management's 2017 Investor Day goal of returning at least $60 billion in capital to shareholders across three consecutive CCAR cycles
JP Morgan increased its per share quarterly dividend payment to $0.90 from $0.80 representing an increase of about 12.5%. That percent change was well below the 43% increase JP Morgan announced following 2018's CCAR, but this low-single digit trajectory puts dividends back on the same track as what management announced in 2017. Using JP Morgan's closing price as of June 27th, the forward dividend yield will be pushed up to 3.31% from 2.94%. On the share repurchase side, the company announced a new program worth up to $29.4 billion over the next four quarters. That's a major step up from last year's buyback announcement worth $20.7 billion and it should provide plenty of support underneath. Now we must mention that JP Morgan needed to take a mulligan with its capital return program and it had to be revised to gain the Fed's approval, but this is probably a function of JP Morgan wanting to return more excess capital to shareholders because its "fortress" balance sheet is top of class.
Last but certainly not least, Goldman Sachs. Before getting into this year's outcome, let's remember that in 2018 the Fed limited Goldman in how much capital they could deliver to shareholders. It appears that CEO David Solomon and team have made quick work in improving the financial status of the firm because this restriction was not the case this year. Goldman Sachs meaningfully increased its quarterly dividend payment per share to $1.25 from $0.85. That's a whopping 47% increase. Using Goldman Sachs' closing price of as of June 27th, the forward dividend yield will be pushed up to a respectable 2.51% from 1.71%. On the share repurchase side, the company announced a new program worth up to $7 billion over the next four quarters and that is $2 billion more than what Goldman announced following the 2018 CCAR. In total, Goldman Sachs' planned capital actions over the next four quarters will be worth $8.8 billion, trouncing last year's announced total return of $6.3 billion. This total payout increase should reduce concerns over the capital reserves needed in relation to potential 1MDB litigation
As we have mentioned before in our Alerts, we view a positive CCAR result as a mini catalyst for the country's biggest banks. Not only does a successful outcome prove that the firms can withstand economic shock and duress, but the dividend boosts make their respective yields more competitive and attractive in a low Treasury yield environment. Combining buybacks and dividends, you won't find a sector with a larger all-in cash yield than the banks, and the group is expected to trade higher at Friday's open.