The board of MetLife Inc. (MET - Analyst Report) has kept its promise of increasing the quarterly dividend per share by approximately 49% hike to 27.5 cents from the prior 18.5 cents. The announcement led to a 5.5% escalation in the stock price, which closed at $37.74 on Tuesday.
This marks the first dividend increment since 2007, bringing the total annual dividend to $1.10 per share. Accordingly, the hiked dividend will be paid on Jun 13, 2013 to the shareholders of record as on May 9, 2013. From now, the company will shift to a quarterly dividend payment structure against the previous practice of annual dividend payouts.
Thus far, MetLife has not been able to return wealth to shareholders in its full capacity, despite being adequately liquid. The latest escalation in dividend has become possible due to the attainment of the long-desired regulatory approval by MetLife to deregister as a bank holding company from the Federal Reserve and FDIC in Feb 2013.This further helped the company pass the financial stress test in the U.S. in Mar 2013.
MetLife holds one of the sturdiest capital positions in the industry, which is cushioned by a diversified portfolio mix and a leading brand, as reflected by its strong book value growth, healthy ratings and sturdy operating cash flow that soared to $17.2 billion in 2012 from $10.3 billion in 2011. Moreover, the company maintains a diminishing risk-profile with a financial leverage that improved to below 28% in Dec 2012, from 36% in Jun 2012.
Though MetLife has closed its banking operations completely, the ongoing regulatory challenges and the risk of being acknowledged as a systemically important financial institution could again put MetLife under the Federal Reserve’s supervision and pose further hindrances in the target to repurchase shares worth about $8 billion by 2016.
Moreover, the extended low interest rate environment, currency fluctuations and inflationary pressure are likely to affect financials in the upcoming quarters. Alongside, intense competition from arch-rivals Prudential Financial Inc. (PRU - Analyst Report) and American International Group Inc. (AIG - Analyst Report) add to MetLife's woes. AIG also expects to initiate dividends in the near future.
Overall, a consistent focus on international growth, improved pricing and the complete exit from the banking business should enhance operating leverage.The exit from banking status will also help the company to focus on strategically strengthening its product-mix, particularly in the emerging nations. This is required in order to generate more predictable operating earnings and cash flow. This in turn would help improve MetLife’s risk profile and enhance free cash flow, which could then be used to enhance shareholder return.
Apart from MetLife, Prudential and Aegon NV (AEG - Snapshot Report) carry a Zacks Rank #2 (Buy).