SunTrust Banks Inc. (STI) announced a hike in quarterly cash dividend on Tuesday. The company was the latest bank to increase dividend following the Federal Reserve’s stress test results that were out in March.
SunTrust declared a quarterly cash dividend of 5 cents per share, payable on September 15, 2011 to shareholders of record at the close of business on September 1, 2011. Hence, the annual dividend payable to the shareholders now stands at 20 cents per share, a jump of 400% from the prior annual dividend of 4 cents per share.
In February 2008, SunTrust had last increased its quarterly dividend to 77 cents per share from 73 cents. Thereafter, due to the financial crisis and the challenging global economic environment, the company continued to lower its quarterly dividend.
Finally, in August 2009, the company cut its dividend to 1 cent per share. Thus, the present rise in annual dividend can be viewed as a recovery, as the company had paid $3.08 per share as dividend prior to the recession.
In January, SunTrust along with 18 other banks, including Regions Financial Corp. (RF) and KeyCorp (KEY), had submitted their comprehensive capital plan to the Fed seeking approval for the repayment of the Troubled Asset Relief Program (TARP) money and dividend hike.
Following the release of the Fed’s stress test results in mid-March, SunTrust received the authorization to raise capital to repay $4.85 billion of the TARP money. In March-end, SunTrust repaid its entire TARP dues.
Concurrent with the dividend hike, SunTrust also declared a quarterly cash dividend of $1,022.22 per share on its Perpetual Preferred Stock, Series A. This dividend is payable on September 15, 2011 to shareholders of record at the close of business as on September 1, 2011.
Our Viewpoint
We remain concerned about SunTrust’s significant exposure to risky assets, a tardy economic recovery and regulatory headwinds. Moreover, a limited margin improvement would keep its bottom-line under pressure.
However, the ongoing positive operating leverage, improved average client deposits and the favorable trend in the deposit mix toward lower-cost accounts continued to raise our hopes for improved results at SunTrust, going forward. Furthermore, with the rise in quarterly dividend, investors’ confidence in the stock will get a boost.
Currently, SunTrust shares retain a Zacks #3 Rank, which implies a short-term ‘Hold’ rating. Also, considering the fundamentals, we maintain a long-term “Neutral” recommendation on the stock.
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