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Ally Financial (ALLY) Up 7.4% on New Share Repurchase Plan

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Shares of Ally Financial (ALLY - Free Report) jumped 7.4% during aftermarket trading following the announcement of a new share buyback program. The company’s board of directors authorized repurchase of up to $1.60 billion worth of shares this year.

Ally Financial will start repurchasing shares in first-quarter 2021. This is in sync with the Federal Reserve’s “modified restrictions that limit combined repurchases and common dividends to an amount that does not exceed the average net income of the four preceding calendar quarters.”

Jeffrey J. Brown, Ally Financial’s CEO, said, “The results of the Federal Reserve's stress test reflect the strength of Ally's balance sheet and capital position, allowing us to resume our share repurchase program, an important component of Ally's capital allocation framework. We enter 2021 with excess capital relative to both regulatory requirements and internal targets, and are well positioned to continue delivering long-term value for our customers, communities and shareholders.”

Earlier, in April 2019, Ally Financial had announced an increase in its stock buyback plan, authorizing repurchase of up to $1.25 billion worth of shares through the second quarter of 2020. Nonetheless, the company suspended the same in first-quarter 2020 amid the coronavirus outbreak in order to preserve liquidity.

Concurrent with the new buyback plan, Ally Financial has declared a quarterly dividend of 19 cents per share. The dividend will be paid out on Feb 12 to shareholders of record as on Feb 1. Considering the last day’s closing price of $38.37 per share, the dividend yield currently stands at 1.98%.

Ally Financial has been paying the same quarterly dividend since February 2020, when it had hiked the rate by 11.8%. This had followed two raises — 13.3% in January 2019 and 15.4% in July 2018.

Driven by its capital strength and earnings growth, Ally Financial will likely be able to sustain enhanced capital deployment activities. Additionally, the company’s initiatives to diversify revenue base and rise in demand for consumer loans will support profitability. Given a solid balance sheet, the company is well poised to expand through acquisitions.

Shares of Ally Financial have rallied 26.9% over the past year, substantially outperforming the industry’s growth of 7.5%

Currently, Ally Financial sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Finance Companies That Took Similar Action

Over the past month, several finance companies have announced new share repurchase program. Some of these are Banner Corporation (BANR - Free Report) , Independent Bank Corporation (IBCP - Free Report) and First Financial Bancorp (FFBC - Free Report) .

Banner Corporation’s board of directors authorized the repurchase of up to 1.75 million shares. Independent Bank announced a new share repurchase plan, under which it is authorized to repurchase up to 1.1 million shares. Further, First Financial announced a share repurchase plan, under which the board of directors approved buyback of up to 5 million shares.

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