The company’s first quarter results were positive, with EPS growing 22.7% year-over year on slightly lower revenue. The upcoming quarterly dividend was boosted by 20% over the previous dividend, which itself was boosted 13.6% over the dividend before that. The average analyst estimate for 5-year annual earnings growth is about 8%, so I expect the dividend to grow at least that quickly and very likely faster due to the low payout ratio.
Based on the current market price I will add 132 shares of Wells Fargo & Co (NYSE:WFC) to The Ultimate Dividend Growth Portfolio with a total cost basis of $5,000.16. The projected annual dividend payment for this position is $158.40.
JPMorgan Chase & Co. (NYSE:JPM)
JPMorgan Chase & Co. (NYSE:JPM) is a bit lower down on the chart than Wells Fargo but still leaves both Bank of America Corp (NYSE:BAC) and Citigroup Inc (NYSE:C) in the dust. Although the London Whale incident, which caused multi-billion dollar losses last year on derivative bets, may have given reason for pause, the bank recorded over $21 billion in net income in 2012, growth of 12% from 2011. And the first quarter of this year saw further earnings growth of 21% year-over-year.
Like Wells Fargo, JPMorgan Chase & Co. (NYSE:JPM) was also forced to cut the dividend during the financial crisis. Since then the quarterly dividend has grown from $0.05 to $0.30, and the dividend payment going ex-div in July has been boosted by another 26.7% to $0.38 per share. This puts the projected dividend yield at 3.11%. It seems like we’ve reached a point in the recovery where the best performing big banks are comfortable raising there dividends significantly.
With an EPS of $5.20 in 2012 the projected payout ratio is just 29%, even lower than that of Wells Fargo. And with analysts predicting 7% annual earnings growth I think that we will see some serious dividend hikes in the near future.
Based on the current market price I will add 102 shares of JPMorgan Chase & Co. (NYSE:JPM) to The Ultimate Dividend Growth Portfolio with a total cost basis of $4,983.72. The projected annual dividend payment for this position is $155.04.
BB&T Corporation (NYSE:BBT)
With the big banks tapped out in terms of dividend growth prospects, I’ll now turn to a much smaller bank, BB&T Corporation (NYSE:BBT). BB&T Corporation (NYSE:BBT) has only $184 billion in assets compared to the $2 trillion or more held by the larger banks, but its return on assets is higher than all but Wells Fargo. BB&T Corporation (NYSE:BBT) operates about 1,800 locations in 12 states and has grown its asset base by roughly 21% since 2008.
While BB&T Corporation (NYSE:BBT) saw earnings growth of 53% in 2012 the first quarter of 2013 was disappointing, with net income shrinking by 44%. However, this decline was due to a one-time charge involving a disputed tax liability, and without this charge EPS actually grew by about 13%.
BB&T Corporation (NYSE:BBT) currently pays a dividend yielding 3.01% after a dividend hike of 15% earlier this year. The payout ratio, based on 2012 EPS, is 34%, about the same as Wells Fargo. Pre-financial crisis the payout ratio was around 50%, so BB&T Corporation (NYSE:BBT) has room to grow the payout ratio. Analysts expect 8.3% annual earnings growth going forward, so dividend growth should be significant.
Based on the current market price I will add 163 shares of BB&T to The Ultimate Dividend Growth Portfolio with a total cost basis of $4,982.91. The projected annual dividend payment for this position is $149.96.
14 down, 6 to go
With these three banks The Ultimate Dividend Growth Portfolio now has 14 positions and about $30,000 in cash left. You can track the state of the portfolio at any time by going here. The portfolio has already seen two dividend increases since its inception from Apple Inc. (NASDAQ:AAPL) and Corning Incorporated (NYSE:GLW), and I expect to see many more as time goes on. Until next time, here’s what the portfolio looks like as of this writing.
The article 3 Banks for the Ultimate Dividend Growth Portfolio originally appeared on Fool.com and is written by Timothy Green.
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