Most banking companies will not make it back to their former dividend levels.

Though a handful of stronger companies such as U.S. Bancorp and JPMorgan Chase & Co. might start increasing their dividend payouts this winter, most will have to wait 12 to 18 months as they struggle to return to profitability and rebuild capital, analysts said.

Moreover, payouts likely will be lower than in previous cycles because of lower earnings, the analysts said. Profits are expected to be smaller as banking companies concentrate on less-risky and less-lucrative products, hold more capital and bear greater regulatory costs such as increased deposit insurance premiums.

Generous bank dividends were popular with retirees and institutional investors, but over the past year many banks slashed their common stock dividends, or suspended them altogether, to preserve capital amid significant credit losses.

"Most banks were embarrassed that they had to reduce or eliminate their dividend, so when they reconsider reinstating their dividend, they're going to be really cautious to make sure there's a high degree of certainty that it would be sustainable," said Dennis Klaeser, a senior analyst at Raymond James & Associates.

Traditional dividend payments were about 40% of earnings, said Gerard Cassidy, an analyst with Royal Bank of Canada's RBC Capital Markets. Banks likely will return to that level eventually, but the dollar value of the payments will be lower because of reduced profits, he said.

Klaeser said that those banks with more conservative balance sheets will be able to return to the same level of dividend payout ratios they had from previous cycles, but those with riskier business lines will likely pay less to retain more capital.

Both analysts predicted regulators will raise the minimum thresholds for capital to lessen the chance of future banking crises. However, once banks repay their Troubled Asset Relief Program funds and meet the new capital requirements, regulators probably will not get in the way of banks returning profits to their shareholders, the analysts said.

In March, the $265 billion-asset U.S. Bancorp in Minneapolis cut its dividend to 5 cents a share, from 42.5 cents. But by the fourth quarter, management and the board will start evaluating whether to begin increasing the dividend in the new year Richard K. Davis, its chairman and chief executive, said in its second-quarter conference call last month.

Still, any dividend increase would have to be contingent upon whether he and the board would have a clear "line of sight" in terms of credit quality and earnings power, Davis said.

In JPMorgan Chase's conference call last month, James Dimon, its chairman and CEO, said that the $2 trillion-asset company would raise its dividend, now at 5 cents a share, when earnings become more normalized, though he did not predict precisely when.

"We would really like to see the change in delinquencies, chargeoffs and the economy so we have a little more certainty going forward," Dimon said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.