U.S. Bancorp Plans To Return $4.8 Billion To Shareholders

U.S. Bancorp (NYSE:USB) shareholders will continue to cash in on their investment, as the commercial banking giant detailed plans to raise its dividends 4% from the current level of 24.5 cents a share to 25.5 cents beginning Q2 2015. ^[1] The dividend hike was cleared by the Federal Reserve as a part of its annual review of the largest financial institutions, along with the bank’s plan to repurchase a little over $3 billion in shares by the end of Q2 2016. Given the bank’s 1.78 billion outstanding shares, the capital plan entails a total payout of a little more than $4.8 billion to shareholders.

Notably, U.S. Bancorp’s 4% dividend hike is lower than what many of its larger competitors have announced recently. We believe that the bank could have comfortably increased its payout for the year further, as it has a strong capital position thanks to its exemption from the additional capital requirements its larger peers face. Also, its plain-vanilla traditional banking model stands to gain substantially in the near future once the interest rate environment improves. U.S. Bancorp’s decision to limit the payout leads us to believe that the bank is maintaining a cash buffer to continue to explore acquisition options over the year. After all, the bank’s penchant for innovation and strategic acquisitions have played a key role in helping it create a name for itself in the big-bank league.

We maintain a $45 price estimate for U.S. Bancorp’s stock which is around its current market price.

See our full analysis for U.S. Bancorp here

U.S. Bancorp has been pretty consistent with its dividend growth policy historically, raising dividends at least once a year between 1998 and 2008. ^[2] The quarterly dividend figure peaked at 42.5 cents a share in 2008, after which the downturn forced a substantial cut in dividends to 5 cents a share starting Q1 2009. Since 2010, the dividend growth has been on track again, with U.S. Bancorp increasing dividends each year to the current 24.5-cents-a-share level.

The table below summarizes U.S. Bancorp’s capital return figures for each year since 2005 and has been compiled using figures reported in annual reports:

Assuming that the bank’s board approves the dividend hike starting in Q2 2015, the bank will pay shareholders $0.255 per share for three quarters – implying total dividends of $1.01 per share for 2015. This would suggest total dividend payments worth almost $1.8 billion for the bank this year, assuming the number of shares remain constant (though it is likely to decline given the buyback plan). Notably, this figure is just 60% of the amount U.S. Bancorp handed out as dividends in 2008 before the downturn forced it to shrink payouts. However, the bank’s proposed share buyback plan of $3.022 billion is the largest in its history.

We include dividend payouts and share repurchases in our analysis of U.S. Bancorp in the form of an adjusted dividend payout rate as shown in the chart below. Our analysis shows that the bank’s 2015 capital plan entails a total payout rate of 75%. You can understand how a change in this value affects U.S. Bancorp’s share price by making changes here.

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1. U.S. Bancorp Receives Results of Comprehensive Capital Analysis and Review; Federal Reserve Did Not Object to Company’s Capital Distribution Plan, U.S. Bancorp Press Releases, Mar 11 2015 [↩]
2. Dividend History [↩]