Discover Financial Services DFS declared that its board of directors has approved a new share repurchase program worth $2.2 billion. Simultaneously, this banking and payment services giant increased its quarterly cash dividend by 16.7%.
Dividend
The revised quarterly cash dividend of 28 cents per share is above the 24 cents paid on May 22, 2014. The raised dividend will be paid on Jun 1, 2015 to shareholders on record as of May 15, 2015.
The quarterly cash dividend is equivalent to an annual dividend of $1.12 per share, up from 96 cents paid previously. Based on the closing share price, the increased dividend translates into a yield of 1.88%, higher than the industry yield of 0.99%. It is also above that of some financial service providers like Capital One Financial Corp. COF and Cash America International, Inc. CSH with yields of 1.44% and 0.75%, respectively.
The company had last increased its quarterly dividend by 20% in Apr 2014. Discover Financial has been constantly hiking its dividend since 2011, which increased at a three-year CAGR of 19.7%.
Share Repurchase
The new $2.2 billion share repurchase program authorized by Discover Financial will replace the $3.2 billion share repurchase plan authorized in Mar 2014. Under the old authorization, scheduled to expire in Apr 2016, Discover Financial repurchased shares worth $2.1 billion in 2014. This new program is slated to expire on Jul 31, 2016.
Our Take
The dividend hike and the new share repurchase program reflect the company’s financial strength. Discover Financial will have to dish out $129.6 million every quarter as dividend, based on the outstanding share count of 463 million as of Dec 31, 2014. The company has ample liquidity for the payment, with cash and investments of $10.7 billion as of year-end 2014.
Currently, Discover Financial carries a Zacks Rank #3 (Hold). A better-ranked stock from the same sector, Santander Consumer USA Holdings Inc. SC, sports a Zacks Rank #1 (Strong Buy).
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