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Six U.S. lenders best placed to hike their dividends as interest rates rise

What are we looking for?

Sustainable dividends from U.S. banks ready to gain from the latest interest-rate hike.

The screen

The U.S. Federal Reserve raised its benchmark interest rate by 25 basis points this week, for a new target range of 1.25 per cent to 1.5 per cent.

That's good news for U.S. lenders: They will earn higher income on new mortgages, and car and credit-card loans. A U.S. unemployment rate of only 4.1 per cent – a 17-year low – should also spur new lending.

But which banks are best placed to profit from higher interest rates, and provide the dividend hikes that often follow? Our search started with our extensive list of U.S. banks with a sound base of profitable lending. We then singled out the top dividend-payers before applying our TSI Dividend Sustainability Rating System. It awards points to a stock based on key factors:

  • One point for five years of continuous dividend payments – two points for more than five;
  • Two points if it has raised the payment in the past five years;
  • One point for management’s commitment to dividends;
  • One point for operating in non-cyclical industries;
  • One point for limited exposure to foreign currency rates and freedom from political interference;
  • Two points for a strong balance sheet, including manageable debt and adequate cash;
  • Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
  • One point if the company is a leader in its industry.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Our TSI Dividend Sustainability Rating System generated six stocks. JPMorgan Chase & Co. is the largest banking firm in the United States, with total assets of $2.6-trillion (U.S.). As the second-biggest, Bank of America is also looking to lend. Wells Fargo & Co., third-largest in terms of total assets, is ready to do the same, having put its "fake accounts" scandal behind it. Credit-card provider American Express is expanding as a lender, especially with personal and small-business loans. U.S. Bancorp and Bank of New York Mellon round out our list of six.

We advise investors to do additional research on any investments we identify here.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

Select dividend-paying U.S. bank stocks

Ranking*CompanyTickerDividend Sustainability RatingMarket cap ($Bil U.S.)Recent Price $ (U.S.)1-Yr Total Return % P/E RatioDividend Yield %Points
1JPMorgan Chase & Co.JPM-NAbove Average370.7105.5124.815.22.19
2Bank of New York MellonBK-NAbove Average56.354.4013.215.71.89
3Bank of AmericaBAC-NAbove Average305.828.8828.116.51.79
4American ExpressAXP-NAbove Average86.397.7833.219.01.49
5Wells Fargo & Co.WFC-NAbove Average297.159.406.414.22.78
6U.S. BancorpUSB-NAbove Average92.154.606.316.42.28

Source: Dividend Advisor

*Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements. 

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