By Lawrence C. Strauss
On the heels of strong fourth-quarter earnings results notched by the largest U.S. banks, it's a good time for income investors to consider some of these stocks for their portfolios.
They don't typically offer the highest yields, with many hovering around 2%. Still, their dividends are growing at a good clip and, more important, their fundamentals look solid.
"One of the things that we like about them is that they're more resilient, and we haven't seen excessive credit erosion," says Matt Quinlan, a manager of the $4.7 billion Franklin Equity Income fund, citing the overall quality of loan portfolios for these banks.
The fund's holdings include Bank of America and JPMorgan Chase.
Betsy Graseck, global head of banks and diversified financial research at Morgan Stanley, points out that the large-cap U.S. banks have plenty of excess capital. This allows them to buy back a lot of stock, often more than they allocate for dividends. But there's plenty of the latter.
Goldman Sachs Group, for example, last year boosted its quarterly dividend to $4 a share from $3, an increase of 33%. The stock yields 1.9%. Last month the company said it would raise its quarterly dividend again, this time to $4.50 a share, up 13%.
Wells Fargo put through a 13% dividend hike last year to 45 cents a share each quarter, up from 40 cents previously. JPMorgan Chase, whose stock yields 2%, last year raised its quarterly dividend to $1.50 a share, up 7%.
Citigroup's stock yields around 2% . The company increased its dividend by 7% last year to 60 cents a share.
Stepping back, dividends in any sector are a reflection of a company's financial health -- an encouraging sign for large-cap bank dividends.
"We just finished fourth-quarter 2025 earnings, and it was very strong," says Graseck. "And the reason for that is we have a very positive backdrop."
She cites a host of factors that are supporting these firms, including healthy stock and bond markets, an appetite for mergers and acquisitions, a strong market for initial public offerings, and accelerating loan growth.
Investment returns have been rising as well.
Graseck covers 12 financial companies, all of them large, including Goldman Sachs, Citigroup, JPMorgan Chase, and Wells Fargo.
For that group, the median return on tangible common equity -- a key metric on which these stocks trade -- was 17.5% in last year's fourth quarter. That's up from 16.3% in the prior quarter and 15.2% in the second quarter of 2025.
"What's driving this is a strong, supportive market environment with improving efficiencies" for the banks, Graseck says. One way to think about that is that noninterest expenses for these companies as a percentage of revenue is declining.
All of which should bode well for dividend health and growth at these companies, barring a major financial downturn.
Even in Graseck's most negative financial scenario, which would include a recession and increasing credit losses for the banks, her financial models don't show the dividends being cut. She says the probability of such a case occurring is very low.
The large banks that Graseck follows had a dividend payout ratio -- the percentage of earnings that get paid out in dividends -- of 31.5% in 2025, roughly in line with the previous year's result.
That's considerably lower than other S&P 500 sectors such as utilities, which has a payout ratio of more than 50%. But a higher payout ratio doesn't make sense for the large banks.
"The higher you go on the payout ratio, the more you put yourself at risk for having to cut it in a severe downturn, and nobody wants to do that," Graseck says.
With the payout ratio staying in a fairly tight range, large-cap bank dividend increases hinge on earnings growth. The median earnings-per-share growth for the Graseck's coverage group, which includes money-center, superregional, and trust banks, was a robust 17%.
"Durable earnings are improving, with efficiencies increasing, and [earnings per share] are going up as well," she says. "Dividends are going up in line with EPS growth."
For investors looking for an income play outside of the large U.S. banks, one to consider is Charles Schwab, which yields 1.2% -- about in line with the S&P 500's of about 1.1%.
The company reported that it earned $4.87 a share in adjusted earnings last year, in line with the consensus estimate of analysts polled by FactSet.
Schwab has been paying a quarterly disbursement of 27 cents a share. However, the company recently declared a 19% quarterly dividend increase to 32 cents a share from 27 cents.
"They're seeing really nice growth in client assets, which are around $12 trillion, still growing share, and they are seeing nice flows," says Quinlan, who holds the stock in the equity income fund he helps run.
Another large-cap bank to consider for investors seeking income is Morgan Stanley, which yields 2.2% -- higher than any of the other stocks mentioned here.
Last year, the company put through a dividend increase of 8% to $1 a share from 92.5 cents on a quarterly basis.
The bank has been growing its wealth and investment-management arms -- segments that have a lot of recurring revenue and are much less dependent on the vagaries of the capital markets. They accounted for more than half of Morgan Stanley's $70.6 billion in net revenue last year.
Quinlan, who holds the stock, says that the company has become "less of traditional capital markets, M&A kind of a place."
That should augur well for the dividend's safety and growth.
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(END) Dow Jones Newswires
February 05, 2026 02:00 ET (07:00 GMT)
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