Ameriprise Financial (AMP) has one of the juiciest yields in the markets these days, but most investors don't even know it. How could a company with a nearly $12B market cap have a large yield without the market realizing it?
Maybe it goes back to Ameriprise Financial splitting from American Express (AXP) several years ago. Combine the split with the financial crisis and maybe most investors don't know or trust what appears to be a new name in the financial world. After all, American Express has much lower yields and forecasted growth rates, so investors appear to trust the old parent more.
The other culprit is that investors remain completely focused on the dividend yield while ignoring the buyback yield or even more importantly, the earnings yield.
Most importantly, the company is scheduled to earn nearly $6 a share in 2012 while only trading at $54. This gives the company an earnings yield of nearly 11%.
From these earnings, the company can choose to pay dividends, buy back stock, make acquisitions, or just sit on the cash. Sure dividends are nice and acquisitions tend to be a bad use of cash, but why disregard buybacks? The management team just proclaimed the stock to be cheap compared to the ability to generate cash flow.
When adding in buybacks that amounted to $300M in Q1'12 alone, the Net Payout Yield jumped to over 14% for the last year. The company also increased the dividend yield by 25% to now yield 2.6%.
This should provide something for all investors to like. Instead, the vast majority of people only focus on the 2.6% dividend yield and pass on this stock for a 3-4% dividend yield. They are missing the more important big picture.
Below are the payout yield details from the Q1'12 earnings report:
The company announced a 25%, or $0.07 per share, increase to its regular quarterly dividend.
Over the past 12 months, the company has declared three quarterly dividend increases, which in total increased the regular quarterly dividend by 94%.
The company repurchased 5.4 million shares of its common stock in the first quarter of 2012 for $300 million.
Excess capital remained above $2.0 billion after the return of $364 million to shareholders during the quarter through share repurchases and dividends, which represented nearly 110% of first quarter 2012 operating earnings.
The below figure highlights the percentage of money spent on both dividends and buybacks over the last five quarters.
Figure 1 - Net Payout Yield for Ameriprise Financial (Click to enlarge)
The above data should highlight the incredible deal investors are passing up with Ameriprise. The company reduced the diluted common shares outstanding by 26M shares over the last 12 months or roughly 10%.
I guess investors wanting dividends won't ever understand this story. But as an investor, I'll happily take 10% more of the company by just holding the stock.
Additional disclosure: Please consult your financial advisor before making any investment decisions.