In a concerted effort to return more value to shareholders, the board of directors of AXIS Capital Holdings Limited (AXS - Analyst Report) approved a share repurchase program along with a hike in dividend.
The board approved a dividend of 25 cents per share, which represents a 4% increase over the last dividend paid. The increased dividend will be paid on Jan 15, 2013 to the shareholders of record as of Dec 31, 2012. The company has a track record of paying dividend every quarter, besides increasing it every year since 2003. The previous dividend increase was made in December, last year where a 4% increase was approved as well.
Based on 122.9 million shares outstanding as of Sep 30, 2012, the company requires $30.7 million for the payment of the quarterly dividend. Meanwhile, AXIS Capital generated cash flow from operations of $888 million in the first nine months of 2012, which is more than adequate for covering the dividend payment.
Following the dividend increase, the yield now comes at 2.8%, based on the closing share price of $35.81 on Dec 17. It is also ahead of the industry average of 2.5% and one of its closest peers, ACE Limited with a dividend yield of 2.4%.
With the new buyback approval, the company is now authorized to repurchase $750 million worth shares in the next two years. AXIS Capital consistently buys back shares. During the third quarter, it spent $179 million to buy back 5.2 million shares, taking the tally to 9.4 million shares repurchased for $317 million in the first nine months. In September last year as well, the board approved a $750 million share buyback program, of which $236 million still remains to be exhausted.
It is likely that the news of the dividend increase as well as new share buyback program helped the share price move up by 0.6%. In the first nine months of 2012, the company paid back $410 million to its shareholders via dividend and share repurchases. The company continues to expect to generate adequate funds that can be deployed not only in returning more value to shareholders but to be directed in avenues that would help the company expand.
Over the last 7 days, 2 of 13 analysts have lowered the estimate for 2012 and 2013. We believe the company’s effort to return more value to shareholders might encourage analysts to pull their estimates upward. The Zacks Consensus Estimate for 2012 and 2013 are currently pegged at $3.63 and $3.92 per share, respectively.
Axis Capital carries a Zacks #3 Rank, which translates into a short-term Hold rating. With optimism over the news to enhance shareholders value, we expect analysts to raise their estimates, providing an upward directional pressure on its Zacks Rank.