Fifth Third Bancorp (FITB) has shown its commitment to rewarding shareholders by increasing its quarterly dividend for the third quarter of 2024. The company declared a cash dividend of 37 cents per share, representing a 6% hike from the previous payout. This dividend will be distributed on October 15, 2024, to shareholders of record as of September 30, 2024.
This latest increase follows a 6.1% dividend hike in September 2023, demonstrating a consistent pattern of shareholder returns. Over the past five years, FITB has increased its dividend five times, resulting in an annualized dividend growth of 8.6%. The company’s current payout ratio stands at 40% of its earnings, indicating that it retains sufficient earnings for reinvestment and future growth initiatives while still delivering attractive returns to shareholders.
FITB isn’t alone in rewarding investors with dividend increases. Other financial institutions like U.S. Bancorp (USB) and Northrim BanCorp (NRIM) have also recently boosted their dividends. This month, USB declared a regular quarterly dividend of 50 cents per common share, marking a 2% increase from previous payouts. In August, NRIM raised its dividend by 1.6% from its prior payout of 61 cents.
Beyond regular dividend payouts, FITB has a share buyback program in place. On July 22, 2024, the company initiated an accelerated share repurchase agreement, paying $200 million on July 23 to repurchase outstanding common stock. This buyback is part of the 100-million share plan announced on June 18, 2019. As of June 30, 2024, 28.6 million shares remain available under this authorization. FITB plans to repurchase $200 million worth of shares in each remaining quarter of 2024.
The company’s focus on maintaining a strong liquidity position underpins its capital distribution activities. As of June 30, 2024, FITB’s total liquidity of $23.9 billion exceeded its total debt of $19.7 billion, indicating manageable debt levels. This strong cash position is likely to boost investor confidence in the stock. Furthermore, Fifth Third’s common equity tier 1 ratio stood at 10.6% as of June 30, reflecting a resilient balance sheet and strong capital position.
Fifth Third’s commitment to shareholder returns is fueled by steady organic growth. Its earnings and revenues have exhibited a positive trend in recent years, and the company’s near-term outlook appears promising. During a recent Barclays conference, Fifth Third provided an update on its third-quarter outlook, projecting total revenues to rise sequentially by 2-3% from its baseline of $2.2 billion, compared to the previous guidance of a 1-2% increase.
The company’s capital distribution plan is further supported by proposed regulatory changes. This month, Michael Barr, the Federal Reserve Board’s vice-chair of supervision, announced a proposed Basel regulation that, if approved, would exempt medium-sized banks (with assets between $100 billion and $250 billion), including Fifth Third, from stringent increased capital requirements. This exemption will mainly affect these banks by including unrealized gains and losses on their securities in regulatory capital, estimated to result in a 3-4% increase in capital requirements over the long run. This new capital requirement plan is expected to benefit FITB, allowing the company to utilize the freed-up capital for increased distribution activities, thus enhancing shareholder value.
Fifth Third is actively growing its commercial payments platform through strategic partnerships. The company expects this segment to become a $1 billion business within the next five years, further bolstering its future prospects.
From a valuation perspective, FITB currently trades at a forward 12-month price-to-earnings (P/E) multiple of 12.05X, slightly above the industry average of 11.08X. While this suggests the stock may be slightly expensive compared to its peers, FITB’s strong fundamentals and growth prospects make it a compelling investment opportunity. Investors should closely monitor this Zacks Rank #3 (Hold) stock and wait for a more attractive entry point before making a decision.
