BNY Mellon’s Plan To Return $2.5 Billion To Shareholders

April 2nd, 2014 by Trefis Team
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BK: Bank of New York Mellon logo
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Bank of New York Mellon

Last Wednesday, March 26,  The Bank of New York Mellon Corporation (NYSE:BK) announced its decision to buy back shares worth $1.74 billion between now and the end of March 2015. [1] The banking group will also increase its dividend payout by 13% starting in the second quarter of the year – a decision it will take to its board for approval later this month. BNY Mellon’s capital plan for 2014 was approved by the Federal Reserve as a part of its annual review of banks – hardly a surprise given the global custody bank’s strong capital position. As we had pointed out in our article Fed Stress Test For Banks: Rationale, Results & Implications, BNY Mellon ranked second among the 30 banks tested in terms of core Tier 1 common capital ratio when subjected to the adverse economic conditions framed as a part of the stress test.

We are in the process of updating our $35 price estimate for BNY Mellon’s stock in light of the proposed capital return plan.

See our full analysis for BNY Mellon here


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BNY Mellon paid out quarterly dividends of over $0.20 a share between 2005 and 2008, with the figure remaining at its peak level of $0.24 for seven quarters until Q4 2008. [2] As the recession set in and the bank faced losses, the dividend was slashed by nearly two-thirds to $0.09 per share in Q1 2009 and remained at that level until Q1 2011 – when the figure was increased to $0.13 per share. These dividends were maintained for two years, with the bank choosing to return additional cash to investors through share repurchases, until it hiked them to $0.15 per share in Q2 2013. The recently announced capital plan will boost quarterly dividends to $0.17 a share starting Q2 2014.

The table below summarizes Bank of New York Mellon’s capital return figures for each year since 2005 and has been compiled using figures reported in annual reports:

(in $ mil) 2005 2006 2007 2008 2009 2010 2011 2012 2013
Common Stock Dividends 644 656 884 1,107 599 441 593 623 680
Shares Repurchased 417 883 113 308 28 41 873 1,148 1,026
Total 1,061 1,539 997 1,415 627 481 1,466 1,771 1,706

Assuming that BNY Mellon’s board approves the capital plan, the bank will pay shareholders $0.17 per share for three quarters – implying dividends of $0.66 per share for the year 2014. This would suggest total dividend payments worth roughly $760 million for the bank, assuming the number of shares remain constant.

The dividend hike combined with the proposed $1.74 billion share buyback plan means that the bank will return roughly $2.5 billion to its investors this year. We include dividend payouts and share repurchases in our analysis of BNY Mellon in the form of an adjusted dividend payout rate as shown in the chart below. Note that the figure for 2009 is shown as 0% as the bank ended up with a net loss that year.

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Notes:
  1. BNY Mellon to Repurchase Up to $1.74 Billion of Common Stock; Federal Reserve Does Not Object to 2014 Capital Plan, Including Proposed Dividend Increase, BNY Mellon Press Releases, Mar 26 2014 [↩]
  2. BNY Mellon Dividend History [↩]