PNC) announced on Thursday that it's raising its quarterly dividend by 14%. The dividend of 40 cents per share, up from 35 cents previously, will be paid May 5 to shareholders of record as of April 17.
This dividend increase follows a 250% increase last year at this time ($0.10 to $0.35). I wrote about PNC last October and its potential for future dividend increases and on Thursday it did not disappoint. Last month PNC passed the Federal Reserve's "stress test" which determines if a bank has enough capital to withstand an extreme economic downturn. This was a big roadblock to pass before being able to make such a sizable dividend increase.
PNC's financial stability is what first attracted me to them. I liked that they had a low dividend payout ratio as well as low debt. They had also been using the banking crisis to buy other banks in order to expand in areas where they had little to no presence. The mortgage crisis had a negative affect on PNC, but it wasn't nearly as great as most banks its size. PNC rebounded much more quickly than their competitors and this allowed them to seek out growth opportunities that, so far, appear to have been great deals for their bottom line.
The increase in dividend wasn't the only good sign. Additionally, PNC plans to purchase up to $250 million of common stock under its existing 25 million share repurchase program in open market or privately negotiated transactions during the remainder of 2012. This is another great sign from management that they expect even better things ahead. A reduction in shares will reduce the amount of dividends that they have to pay in the future, which decreases the dividend payout ratio, which makes dividend increases in the future even easier.
Things are looking good for the banking sector these days. The worse appears to be behind us and there is a lot of opportunity for banks, especially those with solid balance sheets like PNC. When I purchased it, I was taking a bigger risk than usual as PNC did not fit my analysis very well. Sometimes you have to take chances like that when you feel good about the prospects though. I wouldn't recommend making a risky bet like this with a significant percentage of your portfolio. But once you're comfortable investing, there's nothing wrong with setting aside a small percentage for these types of purchases.
Disclosure: Long PNC.