Earlier this week I reported that KeyCorp (KEY) would be leaving the Dividend Aristocrats. After 25 years of sustained dividend increases, the company was forced to cut dividends last week due to the continual fall out from the subprime mess. KeyCorp is not the only regional bank that will fall off the Dividend Aristocrats this year. Fifth Third Bancorp (FITB) announced on Wednesday that it would cut its dividend by 66%.
For people that follow our Thoroughbred Folio, these moves shouldn’t come as a big surprise. KeyCorp and Fifth Third have been two of the weakest companies for some time. The regional bank stocks are falling like rocks. I keep thinking there will be some bottom to the crisis and these guys will come clean, but I suppose they would rather keep fooling themselves with unrealistic profitability estimates.
There is a trend developing here. The next regional bank that will inevitably fall out of the Dividend Aristocrats will be Regions Financial (RF). Regions has been another bank that has been dogged by earnings, but has resisted cutting dividends. I would be shocked if Regions did not announce a dividend cut on or before July 22, when they report second quarter earnings.
Disclaimer: I (unfortunately) own shares of Regions Financial, Fifth Third, and KeyCorp in my Thoroughbred Folio.
June 20th, 2008 at 12:08 pm
You said: “the company was forced to cut dividends last week due to the continual fall out from the subprime mess.”
KeyCorp said its moves came primarily in response to being on the losing side of a federal court ruling in a tax-refund dispute last month.
“Although the announced steps are being taken primarily to offset the accounting effects of the adverse court ruling, they will also help maintain the company’s strong capital ratios and position it to better address both current economic conditions and future growth opportunities,” the company said in a written statement.
June 20th, 2008 at 12:30 pm
Agreed this ruling took them over the edge, but I think my original statement stands. Fifth Third and Regions are suffering the same fate. From Forbes yesterday…
“Loan losses are a mounting problem for large numbers of small and regional U.S. banks, which face a second wave of the credit crisis as those losses accelerate through the next year. Big regional banks like National City , Fifth Third, KeyCorp , Washington Mutual and Wachovia have been badly stung by the crisis, forced to raise capital, cut dividends and otherwise shore up their balance sheets.”
http://www.forbes.com/business/2008/06/19/bear-washington-banking-biz-wall_cx_lm_0619fraud.html