Northern Trust Hikes Dividend - Analyst Blog
March 15 2012 - 2:00PM
Zacks
On Wednesday, Northern Trust Corporation (NTRS)
increased its quarterly common stock dividend by 2 cents to 30
cents per share. The dividend will be paid on July 2, 2012 to
shareholders of record as of June 8.
The strength of Northern Trust’s business model reflects the
company’s commitment towards returning value to the shareholders
with its strong cash generation capabilities. Prior to this
revision, the company had increased its quarterly dividend to 28
cents per share in December 2007, an increase of 12%.
Northern Trust got the approval for its capital plan, which
includes a hike in the quarterly dividend and the buyback of shares
worth $240 million through March 2013. After receiving the
regulatory nod, Northern Trust decided to hike dividend and board
of directors approved a new common stock repurchase authorization
of 10 million shares. The new share authorization program replaces
the existing one.
Following the ongoing concerns in the banking sector, banks were
asked to submit their respective capital plans to the Fed. It was
intimated to these banks that payment of higher dividends will be
restricted if they fail to meet the requirement of 5% ratio of core
capital to risk-weighted assets among other requirements.
Moreover, the Fed's stress test was conducted to find out
whether the banks have enough capital to survive another financial
crisis, presuming 13% rise in unemployment rate, 50% fall in stock
prices, 21% drop in housing prices along with economic downturn in
Europe and Asia.
Other major banks which have come up with dividend hike after
the approval of their capital plans include JPMorgan Chase
& Co. (JPM), Wells Fargo &
Company (WFC) and U.S. Bancorp (USB).
Northern Trust has a strong capital deployment policy through
regular share repurchase and payment of dividends. During 2011, the
company repurchased 1.6 million shares for an aggregate cost of
$79.4 million at an average price of $49.63 per share.
Moreover, it has paid common stock dividends amounting to $273.4
million to shareholders. Dividends and share repurchases together,
Northern Trust’s total payout ratio was 58% in 2011.
We believe that the increase in dividend and approval of new
share repurchase will boost investors’ confidence in the stock,
thereby driving share value. Moreover, Northern Trust has $4.3
billion of cash and cash equivalents at 2011-end leaves ample scope
for further capital deployment.
Shares of Northern Trust currently carry a Zacks #3 Rank, which
translates into a short-term Hold rating. Considering the
fundamentals, we are also maintaining our long-term Neutral
recommendation on the shares.
JPMORGAN CHASE (JPM): Free Stock Analysis Report
NORTHERN TRUST (NTRS): Free Stock Analysis Report
US BANCORP (USB): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
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