Many of the big U.S. banks have already reported their financial results for 2011. The overall reports were quite impressive, considering that just three years ago there were major concerns that a number of them wouldn't be able to survive the credit crisis.
The recent financial reports demonstrate that bank profits have largely recovered to pre-crisis levels and are set to expand in the next few years by as much as 10% annually. The largest banks are now sitting on billions dollars in exces(s cash and are ready to start returning it to shareholders as soon as they get the green light from the Federal Reserve. (After the U.S. government bailed out the financial sector during the height of the credit crisis in late 2008, one of the Fed's first decisions was to reduce or eliminate dividends of banks in order to preserve capital.)
Historically, bank stocks have been great dividend-paying investments. The current recovery is proving that the credit crisis was a major anomaly in a growth and income track record that has been impressive in the long term.
With the financial sector being more consolidated and demonstrating an ability to conduct business more carefully, the Fed should start to allow dividend payouts to rise again this year. I fully expect this to occur at the stronger banks, which have shored up their capital bases and have demonstrated their ability to make sound business decisions.
In the table below, you'll see what the dividend payout ratios were for the nation's leading banks prior to the credit crisis. I believe this is a fair representation of the percentage of earnings these banks will be capable of paying out as dividends once they receive the go-ahead from the Fed.
On average, banks had dividend yields between 3% and 4% prior to the crisis. As you can see, the average yield for these eight banks prior to the credit crisis was pretty appealing at 3.7%.