Large banks like JPMorgan Chase (JPM), Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC) are expected to boost payouts and stock buybacks as they pass the Federal Reserve’s Comprehensive Capital Analysis and Review, due soon, according to a Goldman Sachs report.

Banks' dividend growth has been constrained in recent years by regulatory requirements on capital in the wake of the recent financial requirements. But financial institutions have since restored their financial health and accrued excess capital, and are now poised to grow dividends faster than any other sector, Goldman Sachs concludes.

“Banks can grow their dividends by roughly 20 percent to 25 percent per year over the next few years, given that both payout ratios and earnings will be growing for the banking system,” said Richard Ramsden, head of Goldman’s global investment research financials group. Other banks poised to increase payouts include Citigroup Inc. (C), Zions Bancorporation (ZION) and Fifth Third Bancorp (FITB​).

Higher payouts "would be significant from a signaling standpoint" that regulators are easing up on capital requirements, Nomura Instinet analyst Steven Chubak told Reuters. "That is a key part of the value case for a lot of these stocks." (See also: Bank Stocks: The Attack on Dodd-Frank.)

Morgan Stanley analyst Betsy Graseck estimates that large banks required to pass stress tests have about $150 billion in surplus capital, according to Reuters. She expects if banks could use that capital, they could increase stock buybacks by 27 percent and increase dividends by 8 percent, increasing their combined capital payout to 95 percent of annual earnings this year, compared to 84 percent in 2016. (See also: These 3 Banks Stocks Will Thrive Among Rate Hikes.)

The Financial Select Sector SPDR Fund (.XLF) is up 5.5 percent year to date, and up 8.5 percent the past year. 

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