BofA raises payout 9% after passing Fed's annual stress test

Sergio Flores/Bloomberg

Bank of America has joined rivals in raising its quarterly dividend after the Federal Reserve announced last week that the Wall Street giant passed the regulator's annual stress test.

The Charlotte, North Carolina-based bank said this week that it initiated a dialog with the Fed to understand differences between the central bank's assessment and its own stress tests. Even so, the bank plans to increase its quarterly dividend to 24 cents a share from 22 cents, according to a statement Wednesday.

JPMorgan Chase, Citigroup, Wells Fargo, Morgan Stanley and Goldman Sachs Group all announced higher dividends after every lender subject to this year's Fed stress tests passed the exam. In typical years, clearing the exam sets the stage for banks to return billions of dollars to investors through dividends and stock buybacks.

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BofA's higher dividend would start in the third quarter, subject to approval by the board of directors. At current prices, the stock would yield 3.3% annually. The shares closed at $29.08 on Wednesday, leaving them with a negative total return this year of 11% including dividends. In late trading after the announcement, BofA rose 10 cents a share.

Each year, the Fed tests the banking giants to see if their balance sheets are sound enough to weather severe stress in the economy and financial markets. The results released showed that the biggest 23 US firms can withstand a severe global recession and turmoil in real estate markets.