Goldman sees bank dividends rising as earnings improve

US bank dividends could rise as much as 50% over the next two years as the industry's earnings improve, according to Goldman Sachs Group Inc analysts.

Many of the 19 largest US banks have announced plans to boost their dividends, buy back shares or, in some cases, repay billions in government bailout aid received at the peak of the financial crisis.

Goldman analysts said in a research note released on Monday that for some banks, the combination of dividends and stock buybacks will create demand among investors and reduce stock price volatility.

Banks raising or resuming dividends are paying out roughly 20% of earnings, with stock yields rising as high as 5% when buybacks are included, the analysts said.

JPMorgan Chase & Co, for example, is increasing its quarterly dividend to 25 cents a share from 5 cents and will buy back USD 15 billion in stock.

On Monday Citigroup, which suspended dividends two years ago, said it would start paying 1 cent a share quarterly. It also plans a 1-for-10 reverse stock split.

JPMorgan, Wells Fargo & Co and State Street Corp are the best bets for higher dividends by 2013, the Goldman analysts said.

Bank of America Corp could also show a spike in dividends by 2013, but the current uncertainty around the largest US bank by assets makes predicting a rise in shareholder payouts difficult, they said.