Banks have boosted their dividends by as much as 50% in recent weeks, but the larger payouts have gone just a short way toward piquing investor interest.

Wells Fargo & Co., which raised its dividend on Oct. 19, has so far set the pace with the 50% increase. But other banks aren't far behind. Just last week, Mellon Bank announced a dividend increase of 47%.

The week before that, First Chicago Corp. announced a 33.3% increase in its payout. First Interstate Bancorp and Signet Banking Corp. raised theirs 25% this quarter.

In all, 11 major banks announced dividend increases since Sept. 30, with a median jump of 20%.

That's more banks and bigger increases than the third quarter, when nine banks raised their dividends, with a median change of 11%.

Stockpiling Capital

Behind those payout increases lies a simple fact: Banks have been stockpiling capital.

Earnings have been growing at double-digits rates for the past eight quarters. Without loan growth to pour the cash into, banks have been retaining those earnings as capital. Many analysts believe banks are overcapitalized and that their return on equity may suffer in the future.

"The dividend increases are part and parcel of an overall capital management program that will be continued by the banks," said J. Richard Fredericks, an analyst with Montgomery Securities in San Francisco.

By increasing dividends, banks believe they can hand over more capital to shareholders and boost stock prices.

Indeed, partly due to the recent spate of dividend increases, the dividend yield on bank stocks is more attractive than that of industrials.

The median dividend yield on the top 50 banks is around 3.4%, according to J. Richard Fredericks, an analyst with Montgomery Securities. The yield on the S&P 500, is 2.7%, he said.

"It wouldn't surprise me if we have an average yield close to 4% six months from now," said Dennis Shea, analyst at Morgan Stanley. "We have a number that are over 4% right now."

Over time, those dividend increases and the higher yields may attract investors, said analysts. But higher yields and bigger payouts have not prevented the prolonged selloff of bank stocks that started in mid-October.

|Haven't Had the Impact'

"At one point, dividend increases had a more positive effect on stocks," said Sandra J. Flannigan, an analyst with Merrill Lynch. "But with investors rotating out of the sector, profit-taking, and scaling back their holdings, those increases haven't had the impact that one might hope."

Nevertheless, the dividend increases may have helped slightly. In the past four weeks, the median stock price of the 20 banks that have boosted their dividends in the third and fourth quarters has fallen 3.8%. The median stock price of the top 50 banks fell further, 5.5%.

"The ones that have increased their dividend had only a measured advantage," said Mr. Fredericks.

Change in Investor Focus

One reason for the muted effect of dividend increases is a change in investors' focus.

"Investors are looking at the prospects for revenue growth more than anything else right now," said Ms. Flannigan.

Even banks that have raised their dividends several times in the past 12 months haven't received the the anticipated benefits of the higher bonus.

Banc One, for example, has raised its dividend twice this year, but the stock has been one of the worst performers in 1993.

The increases in dividends posted so far this quarter may seem substantial, but banks are paying out a smaller percentage of their revenues in dividends than they have historically, said Mr. Fredericks.

Regional banks, for example, had a first-quarter payout ratio of 37%. The 25-year average for the group is 58%. Money-center banks in that same period had dividends -- that were 33% versus a 25-year average of 37%.

|Banks Have Room'

Industrial companies, however, are paving out a bigger portion of their revenues in dividends than they have historically. In the first quarter, the S&P 400's average payout ratio was 63% versus the 25-year average of 50%.

"I don't think banks will raise the payouts to the long-term average, but I think they will go to 40%," said Mr. Fredericks. "Banks have room to raise the payouts, but industrials don't.

One reason that banks may not boost their payout ratios to the historic averages is that they want the flexibility high levels of capital give them to make acquisitions of either banks or of businesses, said Ms. Flannigan.

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