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Following the release of the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) results, U.S. Bancorp (USB - Analyst Report) gets the nod for its capital plan along with other major banks. With the approval, the company plans to augment its capital distributions over the 4 subsequent quarters.
U.S. Bancorp intends to put forward a proposal regarding an increase in the annual dividend rate, commencing with the second quarter dividend to be paid in Jul 2013, to its board of directors in June. The company expects to pay a dividend of 28 cents per share, an 18% increase from the present dividend of 19.5 cents.
Additionally, the board of directors announced an unchanged first quarter dividend of 19.5 cents per common share. The dividend will be paid on Apr 15 to shareholders of record at the close of business on Mar 28. Alongside, the company announced preferred dividends on its Series A, Series B, Series D, Series F and Series G Non-Cumulative Perpetual Preferred Stock to be paid on the same day.
Further, the board of directors agreed to a one-year share repurchase authorization of up to $2.25 billion of its outstanding stock, commencing on Apr 1, 2013. This represents an increase of 20% over the $1.88 billion shares repurchased in 2012. The latest share repurchase authorization also replaces the existing program, which carries an expiry date of Mar 31, 2013.
Since 2011, the bank has successfully cleared the stress test and had raised dividend by 150% and 56% in 2011 and 2012, respectively, along with engaging healthy share repurchase activities.
We believe that U.S. Bancorp has a disciplined approach to capital management and capital redeployment remains its top priority. In fact, management expects to return 60%–80% of earnings to shareholders in the form of dividends and buybacks over the long term. Such shareholder-friendly approach instills investors’ confidence in the stock.
In addition to U.S. Bancorp, the other major banks on Wall Street that have cleared the stress test requirements, and therefore plan to boost capital redeploying efforts include Wells Fargo & Company (WFC - Analyst Report), Bank of America Corporation (BAC - Analyst Report) and PNC Financial Services Group Inc. (PNC - Analyst Report).
We believe that U.S. Bancorp’s diverse revenue stream, improving credit quality and solid capital levels are impressive. Though a low interest rate environment and regulatory issues remain our concerns, we believe that the company’s loan growth will be encouraging attributable to the improving economic conditions.
We also believe that the passing of the stress test along with the capital redeployment plans will boost U.S. Bancorp’s stock price going forward.
U.S. Bancorp currently carries a Zacks Rank #3 (Hold).