Stock Market Predictions

Citi reinstates quarterly dividend at 1 cent

Stock Market Predictions

The third-largest U.S. bank, which needed $45 billion in U.S. government bailouts to survive the financial crisis, said in March it planned to reinstate its dividend after shrinking its number of shares outstanding with a 1-for-10 reverse stock split.

The bank's payout pales in comparison to stronger rivals, amounting to a dividend yield of a tenth of a percent for the shares, compared with JPMorgan Chase & Co's (JPM.N) 2.3 percent.

Citigroup Chief Executive Vikram Pandit has said the bank will likely wait until 2012 to increase the amount of capital it returns to shareholders, through increased dividends or share buybacks.

The bank has posted five consecutive quarterly profits but it has struggled to generate the same level of earnings as rivals like JPMorgan Chase.

Bank investors are skeptical that the company will boost its flagging revenues enough to significantly increase payouts by next year.

"I'll believe it when I see it," said Matt McCormick, a portfolio manager at Cincinnati-based Bahl & Gaynor Investment Counsel, which specializes in dividend-paying stocks.

The bank shrank its outstanding share count on Monday, to 2.9 billion from 29 billion, through the reverse share split. Citigroup's share count ballooned during the financial crisis, as the U.S. government stepped in three separate times to rescue the bank and then started selling off its resulting one-third common share stake.

In December, the government finished selling all of the common shares it took in the bank as part of its bailouts, but Citigroup is still struggling to grow its revenues.

Investors, who see reverse splits as cosmetic fixes to what are often fundamental problems, have not rewarded Citigroup. The bank's shares are down more than 7 percent since they started trading on a split-adjusted basis on Monday. They were down 1.7 percent at $41.71 on Friday afternoon.

Citigroup last paid a 1-cent dividend in February 2009 as it teetered on the brink of collapse during the crisis. The dividends it will pay out now amount to about $116 million a year, or about 1 percent of its full-year 2010 net income.

JPMorgan, which pays a dividend of a quarter per share, is paying out closer to a quarter of its 2010 net income in dividends.

In 2006 Citigroup paid out $10 billion of dividends, amounting to about 45 percent of its full-year earnings.

The bank first said it would reinstate a dividend in March, after a slew of stronger rivals received regulatory authorization to lift their dividends by as much as 20 cents a share and buy back stock.

The Federal Reserve concluded a second round of stress tests of the largest U.S. banks then, and gave some the green light to boost shareholder profits. But the Fed restricted 2011 dividend payouts to 30 percent of each company's expected earnings for the year.

(Reporting by Maria Aspan; Editing by Gerald E. McCormick, John Wallace and Richard Chang)