U.S. Bancorp’s Conservative Capital Plan Indicates Bank May Be Saving Up For Acquisitions

by Trefis Team
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U.S. Bancorp
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Late last week, U.S. Bancorp (NYSE:USB) announced a capital return plan for 2017 that was largely similar to what it detailed last year, with the bank looking to return $4.6 billion to shareholders over the next twelve months – marginally higher than the $4.5 billion the bank pledged last June. The increase in payout is due to the bank’s decision to hike quarterly dividends by 7% from their current level of 28 cents a share to 30 cents a share, partially mitigated by the reduction in its total outstanding shares over the last twelve months. The bank’s new share repurchase program is identical to the one announced last year, and it will buy back shares worth $2.6 billion through Q2 2018.

As the largest regional bank in the country, U.S. Bancorp relies on a plain-vanilla traditional banking model to make money, and the improving interest rate environment coupled with a positive outlook for the economy should ideally have allowed the bank to return more cash to investors. We believe the reason U.S. Bancorp chose a conservative payout plan is so that it has sufficient cash on hand to explore acquisition options. 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, but a cease-and-desist order by the SEC over insufficient anti-money laundering measures at the bank currently restrict the bank from acquiring other bank holding companies. However, the bank is expected to fix these deficiencies later this year, and should explore acquisition opportunities in the near future – something that will require ready cash.

We are currently in the process of updating our price estimate for U.S. Bancorp’s stock.

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. 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 28 cents per 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 SEC filings:

USB_QA_CapitalReturn2017

As U.S. Bancorp paid 28 cents in dividends per share over the first two quarters of 2017, and proposes to pay 30 cents per share over the remaining two quarters, total dividends for the year should be $1.16 per share. This works out to total dividends of around $1.95 billion for the year, assuming the total number of shares outstanding remains constant at the current level of 1.7 billion (although the figure will fall steadily due to share repurchases). Also, the bank repurchased $611 million in shares over Q1 2017 and had authorization in place to repurchase another $692 million for Q2 2o17 – taking the total repurchase figure over the first half of the year to $1.3 billion. Taken together with $1.3 billion in proposed purchases for the rest of the year (half of the total proposed repurchases of $2.6 billion), this points to total share repurchases of $2.6 billion in 2017.

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. You can understand how a change in this value affects U.S. Bancorp’s share price by modifying it.

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