Company continues stock buybacks
During 1Q15, Discover Financial (DFS) repurchased ~6 million shares of common stock for $360 million. This resulted in a 1% decline in the common stock outstanding from the previous quarter. The company received a non-objection from the Federal Reserve earlier in March 2015 on proposed capital actions over the five quarters ending June 30, 2016.
As you can see in the above graph, the company has been regularly repurchasing its common shares over the last five quarters.
Discover plans to repurchase $2.2 billion of its common stock over the next five quarters. In the previous week, it increased the quarterly common stock dividend by 17% from $0.24 to $0.28 per share.
In terms of capital deployment, the company intends to invest in organic growth first, followed by returning capital to shareholders. It would prefer the acquisition of financial assets over operating businesses. Currently, it isn’t actively seeking traditional acquisitions.
Discover generated a ROE (return on equity) of 21% for 1Q15. On April 16, American Express (AXP) reported a ROE of 29% for the quarter. Together the two form ~3.5% of the Financial Select Sector SPDR ETF (XLF). American Express forms ~3% of the iShares U.S. Financial Services ETF (IYG).
Discover continues to innovate
Discover continues to innovate and offer new features on its flagship “Discover it” card. In the first quarter, it announced the “Freeze It” capability—it allows card members to temporarily suspend their accounts if a card is misplaced. The company launched a new “Discover it” Miles card during the quarter—targeted to customers who value travel rewards.
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