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Discover Financial's (DFS) Capital Plan Approved by the Fed

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Discover Financial Services (DFS - Free Report) had received approval from the Federal Reserve to implement its new capital plan over the next four quarters. The capital plan comprised 7% dividend hike and share buybacks worth $1.95 billion.

These initiatives are due to get a nod from the company’s board of directors at its July meeting.

The hike, if approved, will translate to a new quarterly dividend payout of 30 cents per share, up from 28 cents paid earlier. Based on yesterday’s closing price of $52.51, the annualized dividend of $1.20 per share will yield 2.3%. Shareholders are expected to have the meatier dividend in their pockets in the third quarter of this year.

Discover Financial has an impressive track record of raising dividends each year. The latest hike marks the fifth straight year of dividend increases. Notably, this Zacks Rank #3 (Hold) consumer loans provider has been increasing dividend at a 5-year CAGR of 38% from 6 cents paid in 2011.

This apart, the firm engages in share buybacks to boost the bottom line. The new $1.95 billion program, which will become effective from Jun 2017, will replace the existing program expiring on Jun 30, 2016. Discover Financial has already spent $422 million to repurchase 9 million shares in the first quarter of 2016.

The company’s shareholder friendly moves make it an attractive pick for yield seeking investors.

Discover Financial has implemented several capital-boosting initiatives, such as equity and debt offerings, which have helped it achieve a strong capital base. The healthy capital and cash position have always facilitated efficient deployment of excess capital through acquisitions, share repurchases and dividend payouts.

Several other firms from the finance sector too have announced dividend increases or share buyback programs of late. Firms like Bank of New York Mellon Corporation (BK - Free Report) , Bank of America Corporation (BAC - Free Report) , and the State Street Corporation (STT - Free Report) saw their capital plans being okayed by the Federal Reserve, thereby facilitating share buybacks and dividend increases.

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