Financials Ready For Big Buybacks And Dividend Hikes

by: Profit Fan

Recently, the Federal Reserve approved many of the big banks' capital asset plans allowing them to go through with proposed share repurchases as well as dividend increases. These banks have been getting a lot of attention lately as it appears most of them have bottomed out and signs of recovery have appeared. In addition to better capital ratios, increased share repurchases and dividend increases are seen as a sign of strength and a much awaited shareholder return. I personally like looking for companies that consistently repurchase their shares as this leads to increased earnings per share in addition to increasing my stake in the business (for two of my favorite, read this article). While earnings beats and dividend increases usually get a lot of attention, the effects of share repurchases on share prices usually take a longer amount of time to appear giving the average investor the benefit of more time to buy. With that said, here is a summary of some financials that have recently announced increases in their share repurchasing programs and dividend payouts:

As you can see above, the most aggressive buyback plans came in from Discover Financial (NYSE:DFS), State Street (NYSE:STT), American Express (NYSE:AXP), KeyCorp (NYSE:KEY), and Comerica (NYSE:CMA). Discover Financial has to be seen as the clear leader as it has approved plans to buy back an amount of shares that represents over 10% of its current market cap and increase its dividend by 42% to $0.20 per share, which would amount to a new yield of 1.8% based on its current share price of $44.14.

It is important to note that in addition to the common share repurchases and dividend increases listed above, Comerica also announced plans to repurchase $25 million in subordinated notes, and Bank of America (NYSE:BAC) announced plans to repurchase $5 billion in preferred shares (same amount as common share repurchase plan).

As for the biggest dividend hikes of the companies listed above, below I have resorted the companies to list them in order of the highest percentage of dividend increase:

As you can see from this sort, the leaders of the dividend increase were SunTrust Banks (NYSE:STI), Discover, JPMorgan (NYSE:JPM), Huntington Bancshares (NASDAQ:HBAN), and U.S. Bancorp (NYSE:USB). SunTrust Banks comes in as the clear leader by increasing the current dividend 100% from $0.05 to $0.10 per share (currently SunTrust shares trade at $29.06 per share). Coming in second is Discover Financial, our leader in payout percentage. Discover Financial will be increasing its dividend from $0.14 to $0.20 which is an increase of 42.85%. In third, and also with the largest current dividend yield of 2.4% was JPMorgan with an dividend increase from $0.30 to $0.38 per share.

While shareholders of most of the banks will gladly be receiving their long awaited dividends, the holders of Bank of America shares will apparently have to wait. Recent announcements for buybacks by BAC made no request to increase its $.01 quarterly dividend, this after previously being denied by the Fed. Since its 2008 high payout of $0.64 per share, BAC had to lower the dividend to $0.01 in an attempt to conserve capital.

While I feel these higher dividends and share purchases will lead to increases in the share prices of each company, it appears this appreciation has already begun as all of these companies have gained from 27% to 2.69% YTD and from 48% to 13% over the last year.

Year-to-date, State Street has gained the most with shares rising 27% since the beginning of the year.

Top 4 YTD performers:

State Street : 27.7%

Comerica Incorporated: 21.75%

KeyCorp: 20.64%

Citigroup, Inc. (NYSE:C): 19.49%

Bottom 4 YTD performers:

SunTrust Banks: 2.69%

U.S. Bancorp: 7.14%

Bank of America Corp: 8.36%

Bank of New York Mellon (NYSE:BK): 12.78%


It's good to see the banks finally buying back shares and increasing their dividends. It is important to note these amounts are the recently announced buybacks that the boards have approved. Each company submitted a plan to the Federal Reserve which may or may not be for more than the currently announced plans. For a summary of the CCAR results, another Seeking Alpha Contributor has compiled a list that you can find here. Of the companies listed, I believe a closer look at Discover Financial is warranted as it has announced the largest buyback program and second largest dividend increase.

Comparatively, Discover Financials' valuation and gain in relation to all of the companies (12) highlighted in this article are as follows:

P/E of 9.96: Third lowest

YTD gain of 14.5%: 5th lowest

52 week performance of 39.86%: 3rd highest

Disclosure: I am long AXP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.