Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

SunTrust Banks, Inc. (STI) Investors Rewarded With Higher Dividend

It’s been a long, tough ride for investors in Atlanta-based SunTrust Banks, Inc. (NYSE:STI) over the past couple of years. After a disastrous 2011, the bank started 2012 as one of the worst performers among the banks put to the Fed’s stress test. Nevertheless, it finished the year strong, going into 2013 on a high note and hoping for better performance in the now two-part Fed stress test.

Will SunTrust (STI)'s Earnings Impress or Depress?

In this year’s first test, the Dodd-Frank Stress Test (DFAST), SunTrust fared much better than last year, remaining well above the 5% minimum in Tier 1 common capital needed to pass. Thursday afternoon, the Fed released the results from the Comprehensive Capital Analysis and Review (CCAR), part two of the new-and-improved test. Shareholders of SunTrust Banks, Inc. (NYSE:STI) should be pleased with the results:


Source: Comprehensive Capital Analysis and Review 2013: Assessment Framework and Results.

Barely a blip
With the CCAR, a bank submits a plan to the Fed requesting a larger dividend or share repurchases to increase shareholder’s returns. The Fed then runs the bank through a “doomsday” scenario to see whether the bank’s Tier 1 capital ratio remains above the minimum. As you can see from the chart above, there was only a minor regression, with its capital plan not having much of an impact on the bank’s important ratio, prompting the Fed to allow the bank to go ahead with its requested plan.

What was the plan?
Earlier this week, I suggested that SunTrust Banks, Inc. (NYSE:STI) had plenty of room to grow its dividend, mostly thanks to its low payout ratio. The Fed has stated that a 30% payout ratio would be subject to “particularly close scrutiny,” so SunTrust’s 5.5% payout ratio was definitely OK. With that in mind, let’s look at what SunTrust will be doing with its dividend:


Source: SunTrust Press Release.

After doubling its dividend, and based on the bank’s projected earnings of $2.69 per share for 2013, SunTrust Banks, Inc. (NYSE:STI)’s new payout ratio of 14.9% is half of the Fed’s ceiling. Furthermore, the bank is going beyond an increased dividend to return even more capital to shareholders:


Source: SunTrust Press Release.

Compared to regional banking leader U.S. Bancorp (NYSE:USB)‘s $2.25 billion in share repurchaseauthorization, SunTrust’s $200 million appears paltry, but keep in mind that it is the bank’s first share repurchase since the doldrums of 2007.

The article SunTrust Investors Rewarded With Higher Dividend originally appeared on Fool.com.

Robert Eberhard has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...
X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!