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Last week, the board of Discover Financial Services (DFS - Analyst Report) approved a new share repurchase program worth $2.4 billion. The new repurchase program replaced the company’s previous $2 billion repurchase program, which had remaining authorization worth $600 million as of Mar 14, 2013.

DFS’ new repurchase authorization is valid till Mar 31, 2015. However, the company can terminate the repurchase program any time before that.

However, Discover Financial has received Federal approval for its capital plans till Mar 31, 2014 only. Thus, the company needs to obtain a no-objection from the Federal Reserve for its 2014 capital plan before repurchasing any shares after Mar 31, 2014.

The authorization for this new repurchase program was a part of DFS’s 2013 capital plan, which was submitted to the Federal Reserve for review. The capital plan also includes a proposal to increase the quarterly dividend to 20 cents per share from 14 cents paid earlier. This proposal of a 43% dividend hike will be considered by Discover Financial’s board of directors in April.

Discover Financial has a healthy capital and cash position, which facilitates the maintenance of an efficient capital deployment strategy. The company utilizes its excess capital for strategic acquisitions, apart from share buybacks and dividend payments. The company authorized a $2 billion share repurchase program in Mar 2012, to replace the previous $1 billion program. Moreover, the strong cash position and future outlook influenced management to increase DFS’s dividend twice in 2011.

Discover Financial currently carries a Zacks Rank #2 (Buy). Other companies worth considering in the financial sector are Encore Capital Group, Inc. (ECPG - Snapshot Report), Global Payments Inc. (GPN - Snapshot Report) and Total System Services, Inc. (TSS - Analyst Report), which carry a Zacks Rank #2 (Buy).

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