Citigroup Inc will resume paying a nominal dividend after it uses a reverse stock split to shrink the number of shares outstanding, taking a small step in its recovery from the financial crisis.

Citigroup will pay a quarterly dividend of a penny a share, its first payout since 2009.

But the bank's shares dropped on Monday, in part because it remains behind rivals like JPMorgan Chase & Co, and Wells Fargo & Co . Those banks on Friday received regulatory authorization to lift their dividends by as much as 20 cents a share and buy back stock.

It's almost like somebody said, 'Hey, we've got all of our big brothers doing something about the dividend and buybacks. We've got to do something to make ourselves look at least somewhat attractive,' said Matt McCormick, a portfolio manager at Cincinnati-based Bahl & Gaynor Investment Counsel, which specializes in dividend-paying stocks.

Citigroup is the most actively traded stock in the United States, and a lower share count will reduce U.S. equity trading volume substantially, agency brokerage Rosenblatt Securities said. The bank's shares closed down 1.3 percent at $4.44, underperforming other bank stocks.

Citigroup said it will reduce the number of common shares outstanding to 2.9 billion from 29 billion through a 1-for-10 reverse stock split.

The dividends it will pay out amount to about $116 million a year, or about 1 percent of its full-year 2010 net income. In 2006 the bank paid out $10 billion of dividends, amounting to about 45 percent of its full-year earnings.

The reinstated dividend and the reverse split together are a token, McCormick said, adding: It's not enough for me to express interest in the stock.

The bank reiterated in a statement that it anticipates returning more capital to its shareholders starting in 2012.

The reverse stock split and intention to reinstate a dividend are important steps as we anticipate returning capital to shareholders starting next year, Chief Executive Vikram Pandit said in a statement.

The bank intends to increase its payouts beyond a penny per share starting next year, a person familiar with the matter said on Monday.


Citigroup's quarterly dividend peaked at 54 cents per share in 2007.

By the end of that year, the bank had started recording billions of dollars of losses on subprime mortgages. It cut back on its shareholder payouts over the next year, until it eliminated its one-cent dividend in early 2009 as it received its third government rescue. It took $45 billion in bailout aid during the financial crisis.

The No. 3 U.S. bank largely finished extricating itself from U.S. government ownership in December. It reported a full-year profit for 2010, its first since 2007.

Citigroup will resume paying a dividend in the second quarter, after the reverse split, which takes effect after the close of trading on May 6.

Reverse splits have traditionally been the resort of companies with low share prices trying to make their shares look more attractive to institutional investors, or trying to meet exchanges' minimum share price requirements.

Reverse splits are not always successful. Shares of American International Group Inc fell in 2009 after the company cut its share count in a 1-for-20 reverse split.

Because Citigroup is the most actively traded U.S. stock, the reverse split could hit volumes at exchanges like NYSE Euronext and Nasdaq OMX Group and force market makers, high-frequency algorithmic traders and others to adjust their strategies.

The reverse split could wipe out 5 percent of overall U.S. equity trading volume and make a significant dent in options volumes, said Rosenblatt Securities, which does market structure research.

Citigroup shares rose to $5.15 in mid-January but in the past month have hovered in the mid-$4 range.

When the stock's selling at that low a price, there's just an air of something that's not quite as healthy as it should be, said Michael Holland, chairman of money manager Holland & Co, whose company has owned Citigroup shares in the past but does not currently hold them.

A reverse split makes no economic sense -- you have the same equity ownership, he said. It's simply psychological.

(Reporting by Joe Rauch in Charlotte and Maria Aspan in New York; additional reporting by Jonathan Spicer in New York; editing by Gerald E. McCormick, John Wallace and Carol Bishopric)