As part of its effort to enhance shareholder value, U.S. Bancorp (USB) declared an 18% hike in its quarterly cash dividend. This action is in line with the company’s 2013 capital plan, which was approved by the Federal Reserve (Fed) on Mar 14. The capital plan also includes a share repurchase of $2.25 billion, which the company is yet to execute.
With this hike, the company’s new quarterly dividend will be 23 cents per share, which will be paid on Jul 15 to shareholders of record as of Jun 28.
In addition to this, U.S. Bancorp announced quarterly dividends on its Non-Cumulative Perpetual Preferred Stock, Series A, Series B, Series F, Series G and Series H of $884.722, $221.18, $406.25, $375.00 and $261.08 per share, respectively. These dividends will be paid on Jul 15 to shareholders of record as of Jun 28.
The approval of its capital plan and the execution of the same indicate the company’s capital strength, which it gained from its earnings power. U.S. Bancorp has delivered positive earnings surprises in 3 of the last 4 quarters. With an expected earnings growth rate of 7.7%, the company is expected to continue returning capital to its shareholders.
With respect to its capital position, U.S. Bancorp’s Tier 1 capital ratio was 11.0% as of Mar 31, 2013 compared with 10.9% as of Mar 31, 2012. Tangible common equity to tangible assets ratio stood at 7.4%, up from 6.9% at the end of the prior-year quarter.
U.S. Bancorp’s dividend hike activities can be traced back to first-quarter 2012, when the company had increased its quarterly dividend by a whopping 56% to 19.5 cents per share.
Dividend Hikes by Other Banks
Similar to U.S. Bancorp, other companies that hiked their dividends following the Fed’s approval include Fifth Third Bancorp. (FITB), Zions Bancorp. (ZION) and KeyCorp. (KEY). Fifth Third raised its dividend by 12% to 9 cents, Zions by 300% to 4 cents and KeyCorp by 10% to 5.5 cents per share.
Our Viewpoint
Steady capital generation coupled with its long-term goal of returning 60–80% of earnings to shareholders positions U.S. Bancorp as a lucrative option for yield-seeking investors.
Currently, U.S. Bancorp carries a Zacks Rank #3 (Hold).
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