During the credit crisis, many banks had to move to protect capital by halting buybacks and cutting or eliminating dividends altogether. Now that the crisis is behind us, we are starting to see that path reversed and many analysts think that banks could be one of the leading sectors for dividend growth. Banks are starting to take money out of loan loss reserves as nonperforming loans are decreasing back towards pre-crisis levels, and this adds cash to the income account that can be used to increase dividend payouts.
Investors who favor a dividend growth approach should be adding many of the regional and community banks to their portfolio while they are still cheap. Susquehanna Bancshares (SUSQ) is expected to be one of the leading dividend growth bank stocks. Connecticut-based Webster Financial (WBS) slashed its dividend to preserve capital back in 2009 but have now started to raise the payment once again. East West Bancorp (EWBC) is another bank that has done a fantastic job of ramping up its dividend payout after slashing in 2009 to protect the balance sheet.