Morgan Stanley, BofA raise dividends after the 2022 bank stress test

The Federal Reserve (Fed) board undertook its annual bank stress test on June 23, 2022, which shows if banks have strong capital levels. The test results showed that banks continue to have strong capital levels, such that they would be able to continue lending to households and businesses in case of a severe recession.  

All banks tested showed that they have the minimum required capital despite projections of possible losses amounting to $612 billion. Further, the tests put banks through hypothetical worst-case scenarios over a nine-quarter period, and they still came out on top, which shows the resiliency of the banking sector in the U.S.

Hence, two U.S. banks decided to raise dividends for the benefit of their shareholders, namely Morgan Stanley (NYSE: MS) will raise its dividend by 11%, while Bank of America (NYSE: BAC) will raise its dividend by 5%. Currently, the two seemingly represent an ideal addition to a dividend investor’s portfolio.  

MS chart and analysis

Shares of Morgan Stanely have seen a downward trend since February of this year, possibly creating a new support line around $72, while currently trading below all daily Simple Moving Averages (SMAs). Higher than usual trading volumes have been present throughout 2022 compared to the previous years.   

Accordingly, analysts rate the shares a moderate buy, predicting that in the next 12 months, the price could reach $102.67, 32.58% higher than the current trading price of $77.44.

BAC chart and analysis 

Similar to Morgan Stanley, BAC shares also experienced a downtrend from February onwards, with shares forming a new trading range between $37.5 and $30.66, staying firmly below all daily SMAs. Higher trading volumes have been noted in June but right now the resistance line above $37 seems to be too strong for the shares to break out.

As a result, analysts rate the shares a moderate buy, seeing the next 12 months’ average price reaching $45.92, 41.95% higher than the current trading price of $32.35.

Finally, dividend investors, as well as those looking for income should have both of these banks on their watchlists, especially after the stress test showed there is enough capital to see them through a major crisis. 

The recent downturn in share prices could offer investors solid entry points; however, investors should note the recent volatility in the broader markets and need to be cognizant that there could be more price volatility going forward. 

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