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Goldman (GS) to Hike Dividend by 10% Post Stress Test Results

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After having cleared the Federal Reserve’s latest annual health check, also known as the ‘stress test,’ The Goldman Sachs Group, Inc. (GS - Free Report) announced its capital plans that underline a 10% dividend increase beginning Jul 1, conditional on approval by its board of directors at the third-quarter meeting.

Last year, after clearing the stress test, the company announced a 25% increase in the quarterly dividend in July 2022.

Now, it plans to increase its common stock dividend from $2.50 per share to $2.75. This aside, GS announced a $30-billion common stock repurchase program in February 2023. In first-quarter 2023, 7.1 million shares were repurchased for $2.55 billion, with $27.45 in the remaining authorization under this plan. Such efforts not only reflect the company’s commitment to return value to the shareholders but also its healthy position to endure severe economic downturns.

Notably, the stress test determined the firm’s Stress Capital Buffer (“SCB”) at 5.5%, resulting in a minimum Standardized Common Equity Tier 1 (“CET1”) ratio requirement of 13%. This will become effective from Oct 1, 2023. The minimum Standardized CET1 ratio is lower than the prior year’s threshold of 13.3%. With a lower capital ratio requirement, a company typically has higher flexibility to deploy capital in share buybacks and dividends.

Per management, “We are pleased by the progress we’ve made in reducing the capital intensity of our business as reflected in the stress test results. We will continue to dynamically manage our capital to unlock meaningful value for shareholders, including with a planned increase to our dividend and added flexibility in our capital repurchase program.”

However, under the ‘severely adverse scenario,’ Goldman Sachs had the highest amount of estimated losses from commercial estate loans and credit cards. GS also had the highest projected loss under the "global and exploratory market shock" scenario.

Shares of GS have declined 6.1%in the year-to-date period compared with the industry’s fall of 9.6%.

 

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GS currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Banks With Enhanced Capital Deployment Plans

Some other large U.S. banks, including JPMorgan (JPM - Free Report) and Wells Fargo (WFC - Free Report) , said on Friday that they would return more cash to shareholders after the clearance of the 2023 stress test.

JPM, the largest U.S. bank, intends to raise the quarterly dividend by 5% to $1.05 per share. This follows no change in the dividend payout last year.

Likewise, Wells Fargo announced plans to hike the dividend to 35 cents per share from the current 30 cents. Also, over the four-quarter period through the second quarter of 2024, WFC has the capacity to repurchase shares.


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