The dividend-growth rates of Midwestern bank stocks could exceed 15% annually over the next few years, according to a survey by Chicago Corp., a regional brokerage firm.
The survey of 37 banks comprising Chicago Corp.'s Midwest Bank Index found that stock prices jumped 132% from September 1990 to October 1993. largely because of decreasing interest rates and dramatically improved capitalization and asset quality.
This equaled a compounded annual return of 31%, excluding dividend returns.
During this time, however. earnings growth outpaced dividend growth.
Other Key Ratios Advance
"Diminishing dividend-payout ratios have occurred while other key ratios of bank health have exhibited lively improvement," according to James M. Schultz, a Chicago Corp. bank analyst.
"As a result, we expect that banks as a group will accelerate dividend increases over the next few years, reflecting the group's abundance of equity capital," he said.
Indeed, the trend is already under way. In the latest 12-month period, every bank in the Chicago Corp. bank index has raised its dividend.
The Chicago Corp. survey showed that the average dividend paid by its indexed banks increased 13.8% in this year's third quarter from the year-earlier period.
"Our analysis suggests that the entire group could be in store for continued market-value gains in the coming year."