In an effort to boost shareholder confidence, American International Group Inc.’s (AIG - Analyst Report) sanctioned a new share repurchase program worth $2.0 billion, which will commence with immediate effect. However, the expiry of the buybacks remains indefinite and depends on market and operating conditions.
This marks the second authorization in this year itself and third one within a year, which was approved in Aug 2013 (worth $1.0 billion) and completed successfully. In Feb 2014, AIG had permitted another $1.0 billion of stock repurchases, to be implemented gradually.
Meanwhile, the company bought back about 17.4 million shares for $867 million during first-quarter 2014. An additional stock worth $418 million was repurchased so far in second-quarter 2014, leaving about $119 million of shares available for repurchases under the prior authorization.
Following the latest replenishment, AIG now has gross stock of $2.12 billion remaining for buyback. The latest extension of the share buyback also came soon after AIG hiked its dividend payout by 25% in Feb 2014, from the prior amount of 10 cents a share.
Strong Capital Resources
The amplified stock repurchases stem from AIG’s strong capital position and a moderately risk-free balance sheet, also signaling earnings accretion from lower share count. The divestment of International Lease Finance Corp. (ILFC) to AerCap Holdings NV (AER - Snapshot Report) last month for about $7.6 billion has further boosted the company’s liquidity and capital flexibility.
At the end of Mar 2014, AIG’s long-term debt also narrowed to $39.5 billion from $41.7 billion at 2013-end. Previously, efficient liability management initiatives helped debt-to-capital ratio improve to 17.3% at 2013-end from 20.5% at 2012-end and about 31% at 2010-end. Meanwhile, total investment portfolio and cash position witnessed improvements. These reflect improved leverage and superior capital adequacy to meet future obligations, thereby boosting investors’ confidence in the stock.
Currently, AIG and AerCap bear a Zacks Rank #3 (Hold). Some better-ranked insurers include OneBeacon Insurance Group Ltd. (OB - Snapshot Report) and Old Republic International Corp. (ORI - Snapshot Report), both of which sport a Zacks Rank #1 (Strong Buy).