Last week, PNC Financial Services Group Inc. ( PNC - Analyst Report ) got the nod from the Federal Reserve to hike its common stock dividend. In the latest round of stress tests, the Fed reviewed the company’s capital plan and did not object to any of the capital actions proposed by the company.

In its capital actions, PNC Financial proposed an increase in its quarterly common stock dividend in the second quarter of 2012. Moreover, the company also projected a moderate share buyback program under its existing common stock repurchase authorization.

While these capital actions were approved by the Fed, in its next planned meeting on April 5, 2012, PNC Financial’s Board of Directors is expected to consider a hike in its quarterly common stock dividend.

Our Take

The clearance of the stress test is a testimony of PNC Financial’s solid capital position. With its proven cash generating capacities, the company remains committed to increasing shareholders’ wealth through dividend increases and share buybacks. Its cash and due from banks, standing at $4.1 billion as of December 31, 2011, position it well to increase its dividend come April.

Notably, in April 2011, the company increased its quarterly common stock dividend to 35 cents per share from 10 cents following its capital plan approval by the Fed. We believe such a shareholder-friendly approach will inspire investors’ confidence in the stock.

Moreover, we believe that its strengthening of balance sheet, with focus on risk and expense management, should propel the company’s earnings ahead. PNC Financial recently completed the purchase of RBC Bank (USA), the U.S. retail banking subsidiary of Royal Bank of Canada ( RY - Snapshot Report ) .

The acquisition facilitated PNC Financial to expand its footprint in the Southeast markets by adding over 400 branches to its network. It marked PNC Financial's seventh successful acquisition in the past eight years. PNC Financial expects the acquisition to be immediately accretive to earnings (excluding integration costs).

Yet, the top-line headwind is expected to remain in the near term, with the sluggish economic recovery and a low interest rate environment. Alongside, the regulatory issues also remain a concern.

PNC shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation. Considering its fundamentals, we also have a Neutral recommendation on the stock.