Cheer as Citigroup to restore dividend

Many of the biggest US banks announced dividend hikes on Friday after the Federal Reserve completed a second round of industry stress tests and approved the increased payouts.

Citi said it will shrink the number of common shares outstanding to 2.9 billion from 29 billion through a 1-for-10 reverse stock split. It will start paying a quarterly dividend of 1 cent per share in the second quarter. It suspended dividend payouts two years ago.

That penny per share is “almost symbolic”, said Michael Holland, chairman of money manager Holland & Co.

“It does indicate a reflection of the fact the company has moved towards financial health, if not strength,” said Holland, whose company has owned Citigroup shares in the past but does not currently hold them.

The third-largest US bank largely finished extricating itself from US government ownership in December after taking $45bn (£27.7bn) in bailout aid during the financial crisis. The bank reported a full-year profit for 2010, its first since 2007.

Its reinstated dividend pales in comparison to the payouts announced by some rivals on Friday. JPMorgan Chase & Co, for example, will pay 25 cents per share – a 20-cent increase.

But by reinstating the dividend this year, Citigroup is ahead of its own schedule to start rewarding its investors – albeit to a limited extent.