Back to top

Fidelity National Hikes Dividend by 10%: Should You Hold?

Read MoreHide Full Article

On Feb 1, Fidelity National Information Services (FIS - Free Report) hiked its quarterly common stock dividend by 10% from the previous payout to 32 cents per share. The new dividend will be paid on Mar 30 to shareholders on record as of Mar16, 2018.

Prior to this hike, the company had raised its dividend by 12% to 29 cents per share in January 2017.

The company also has a share repurchase program in action. It includes a $4 billion share repurchase authorization, which expires on Dec 31, 2020. Supported by a solid balance sheet position, it continues to enhance shareholder value through efficient capital deployment activities.

However, the news failed to cheer investors. In fact, shares of Fidelity declined 1.3% in the last trading session, perhaps reflecting investors’ concerns over its weak revenue growth prospects.

Concerns

Though the company’srevenues have witnessed a compound annual growth rate of 12.4% over the last five years (ended 2016), it is projected to increase only marginally in 2017 compared with the industry’s 8.9% growth. Revenues from Global Financial Solutions segment are likely to have contributed less due to softness in trading volume on account of lower volatility.

Further, Fidelity’s return on equity indicates that it utilizes shareholders’ funds less efficiently than the industry. The company’s ROE of 14.05% compares unfavorably with 24.45% for the industry.

Growth Drivers

The company’s earnings per share (EPS) have increased 11.15% over the last three to five years. The trend is expected to continue in the near term as well. Fidelity’s projected EPS growth is 15.5% and 10.2% for 2017 and 2018, respectively.

Its strong capital position keeps it well poised to undertake opportunistic growth strategies. Its past acquisitions have been accretive to earnings. Further, it continues to drive synergies from the SunGard acquisition completed in 2015.  

Moreover, the company’s leverage picture looks encouraging. Its debt/equity ratio of 0.87 compares positively with 0.97 for the broader industry.

Additionally, the stock looks undervalued based on its price-to-book and price-to-cash flow ratios, which are below the respective industry averages.

Our Viewpoint

Fidelity’s growth prospects look encouraging based on its inorganic growth strategies and lower debt burden. Further, the projected increase in EPS is also encouraging. Also, the company has been able to gain analysts’ confidence, as indicated by a slight upward revision in the Zacks Consensus Estimate for current-year earnings over the last 30 days.

However, poor revenue growth prospects continue to remain a drag.

Shares of Fidelity have gained 11.3% over the past six months, underperforming the 20.1% rally of the industry it belongs to.

Zacks Rank & Stocks to Consider

The stock carries a Zacks Rank #3 (Hold).

The Zacks Consensus Estimate for Visa (V - Free Report) has increased 5.2% for the current year, in the last 30 days. The company’s share price has increased 40.9% in the past year. It carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mastercard Incorporated (MA - Free Report) has witnessed 5.2% upward earnings estimate revision for 2018, in the last 30 days. Its share price has risen 60% in the past year. It carries a Zacks Rank of 2.

Alliance Data Systems Corporation (ADS - Free Report) also carries a Zacks Rank #2. Its shares have gained 10.3% in a year and its earnings estimates for 2018 have moved up 3.9% in the last 30 days.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>



More from Zacks Analyst Blog

You May Like