Comerica Inc. (CMA - Analyst Report) remains committed to increase shareholders’ wealth and plans to buy back shares up to $375 million between the first quarter of 2012 and the first quarter of 2013. This announcement follows the company’s clearance of the stress test.
Notably, the Federal Reserve reviewed Comerica’s capital plan under a stressed economic scenario and made no objection to the capital distributions considered in it. Along with the share buyback activity, the plan also includes a 50% hike in its quarterly dividend to 15 cents per share from 10 cents. Comerica’s board will review this dividend increase proposal at its April 24, 2012 meeting.
Besides the dividend hike, Comerica’s capital plan comprises the authority for redemption of its remaining $25 million of trust preferred securities when callable. We believe Comerica’s passing of the stress test along with its capital distribution plan is a testament of the company’s solid capital position.
Besides Comerica, the other Wall Street banks such as JPMorgan Chase & Co. (JPM - Analyst Report) , Wells Fargo & Company (WFC - Analyst Report) and U.S. Bancorp (USB - Analyst Report) have also increased their dividends and share buybacks following the Fed’s approval of their capital plans.
Going forward, we believe that continuous geographic diversification beyond the company’s traditional and slower-growing Midwest markets could drive growth over the next cycle. Capital deployment efforts also inspire investors’ confidence in the stock.
Notably, Comerica commenced a share repurchase program that, combined with dividend payments, resulted in a total payout to shareholders of 47% of 2011 net income. In fact, the share buyback amount represents a solid increase over the $110 million the company repurchased in 2011.
We believe that the company’s current capital position allows sufficient scope for further capital deployment. Yet, its significant exposure to riskier areas such as commercial real estate markets, unsettled economic environment and regulatory issues are concerns.
Shares of Comerica currently carry a Zacks #2 Rank, which translates into a short-term Buy rating.