Citigroup Inc (NYSE:C) wasn’t the only big bank stock to benefit from getting a green light for its capital plans, but none of them rallied quite like C stock.
Citigroup stock, long the sick man of the Big Four money center banks, said the Federal Reserve OK’d a fat dividend hike and a share repurchase program. Between the two, the bank will return a total of $10.4 billion in cash to C stock holders over the next four quarters.
Anyone holding C stock has been waiting a long time to hear that. Once upon a time, a key reason to own banks stocks was for their dividends. But then the financial crisis and expanded government oversight forced banks to fortify their balance sheets and dividends and buybacks became thin and scarce.
The darkest of those days is now rapidly receding. Citigroup received approval to triple its dividend and buy back up to $8.6 billion in C stock over four quarters starting with the third quarter of 2016.
As of now, Citigroup stock pays a quarterly dividend of 5 cents a share, good for a yield of just 0.48%. An increase to 16 cents would make the yield 1.52% on the current share price. As CEO Michael Corbat said in a news release:
“We are pleased that today’s result shows progress on two of our most important priorities — to establish Citi as an indisputably safe and strong institution and to demonstrate our ability to consistently increase the amount of capital returned to our shareholders. We remain intently focused on strengthening and improving Citi’s capital planning process while delivering the returns that our shareholders expect and deserve.”
A New Phase for C Stock?
No, even the higher dividend won’t deliver a fountain of yield by any means, but it will make C stock far more competitive as an income payer vs. peers. Based on current dividends, Bank of America Corp’s (NYSE:BAC) yield stands at 1.54%, JPMorgan Chase & Co. (NYSE:JPM) pays 3.22% and Wells Fargo & Co (NYSE:WFC) offers 3.33%.
Between a sagging share price and paltry dividends, it’s been a hard to make a case for C stock. It’s been easier to argue that even lowly BAC has better growth prospects.
With the dividend damn having been broken, it’s now possible to argue that C stock might have the most rebound potential of peers. After all, if any big bank stock should be spring-loaded from terrible share performance, it’s Citigroup.
Shares lag peers over the last half-decade. Heck, C stock gives BAC a run for most disappointing major bank stock of this long running bull market.
However, as we’ve noted with BAC, betting on banks during these days of Brexit fears and a seemingly endless reign of ultra-low interest rates is going to require tremendous patience. Even the best-in-breed bank stocks have been a dog’s breakfast for more than a year now.
It’s probably too early to slap a buy call on Citigroup stock, but when that time does come, we’ll be able to trace its origin back to this capital plan.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.