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U.S. Bancorp Announces 13.5% Dividend Hike: Worth a Look?

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Recently, U.S. Bancorp’s (USB - Free Report) board of directors announced a 13.5% hike in the company’s quarterly common stock dividend. The revised quarterly dividend comes at 42 cents per share compared with the previous figure of 37 cents. This dividend will be paid on Oct15 to shareholders of record as of Sep 30, 2019.

The latest hike is in line with the company’s 2019 capital plan, which also includes a share-repurchase program of up to $3 billion for a four-quarter period which began on Jul 1, 2019. Notably, U.S. Bancorp returned 79% of its earnings to shareholders through dividends and share repurchases as of Jun 30, 2019, within the targeted payout ratio of 60-80%.

Since 2011, U.S. Bancorp has been raising its dividend consistently. From paying 12.5 cents a share as quarterly dividend, the company has come a long way in terms of its capital strength. Prior to this hike, the company had raised its dividend by 23% (from 30 cents to 37 cents per share) last September.

Considering Tuesday’s closing price of $55.90 per share, the dividend yield is currently valued at 3.01%.

The business model of U.S. Bancorp is quite impressive as it enables the company to generate sufficient capital, strengthen its balance sheet and help return capital to shareholders. Moreover, we believe strategic acquisitions will expand the company’s business and enhance its profitability over time.

The company’s strong capital position and expanded business through acquisitions, along with steady organic growth, aided by rising loans and deposits, and improved credit quality, will drive its profit figures. However, escalating costs might limit its growth to some extent.

During the six-month period ended Jun 30, 2019, the company paid roughly $1.2 billion in dividends to the common shareholders. Additionally, it repurchased common stock worth about $1.4 billion during the period. Cash and due from banks, exiting the quarter, were about $16.9 billion.

U.S. Bancorp’s price performance also remains impressive. Shares have rallied 7.1% in the past three months compared with 5.8% growth recorded by the industry.

Investors interested in this Zacks Rank #3 (Hold) stock can have a look at the bank’s fundamentals and growth opportunities. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Revenue Strength: U.S. Bancorp’s net total revenues witnessed a compounded annual growth rate (“CAGR”) of 2.9%, over the last five years (2014-2018), with the trend continuing in the first half of 2019. The sturdy top-line improvement has been backed by solid loan and deposit growth.

Additionally, the company’s projected sales growth of 1.9% for 2019 and 2.2% for 2020 ensure continuation of the upward revenue trend.

Earnings per Share Growth: U.S. Bancorp registered 6.9% growth in earnings per share over the last three to five years. The long-term earnings per share growth rate is projected at 7%. Notably, earnings are estimated to grow at a rate of 5.1% for 2019 and 3.7% for 2020.

Superior ROE: U.S. Bancorp’s Return on Equity (ROE) ratio is 15.45% compared with the industry average of 12.18%. This indicates that the company reinvests more efficiently compared with the industry.

Strong Leverage: The debt-to-equity ratio for U.S. Bancorp is 0.86 compared with the industry average of 0.88. This indicates greater financial stability for the company and lesser risk for shareholders.

Strategic Moves: U.S. Bancorp has made a number of strategic bank acquisitions in the past years, which have opened up new markets for the bank and fortified the existing ones as well. These acquisitions, combined with ongoing investments in innovative product enhancements, services and people have strengthened the company’s balance sheet and fee-based businesses besides increasing its market share.

Rising expenses: Mounting non-interest expenses pose a concern for the company. Though expenses declined in 2018, the company’s non-interest expense witnessed a CAGR of 5.9% over the last five years (2013-2017), with the trend continuing in first-half 2019. As the company continues to invest in franchise, overall expenses are expected to remain elevated.

Our Take

Based on the above-mentioned factors, it seems to be a wise decision to add U.S. Bancorp stock to your investment portfolio.

In addition, its Zacks Consensus Estimate for earnings has been revised slightly upward for 2019, over the past 60 days

Some other finance stocks which raised their dividends during the past three months include SunTrust Banks, Inc. (STI - Free Report) , Virtus Investment Partners, Inc. (VRTS - Free Report) and Northern Trust (NTRS - Free Report) .  SunTrust Banks raised its quarterly dividend by 12%, while Virtus Investment increased by 22%. Northern Trust has also announced a 17% rise in its common stock dividend.

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