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State Street Maintains Its High Payout Ratio, Dividend Rises

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Higher dividend yields

State Street (STT) has historically paid out most of its profits in dividends. The company increases its dividend per share in line with performance.

In 4Q15, State Street declared a total dividend per share of $0.34, up 13% from 4Q14. This dividend per share translates into an annualized dividend yield of 2.4%, which is higher than the industry average of 2.1%. State Street’s peers have the following yields.

  • JPMorgan Chase (JPM): 2.9%
  • Bank of New York Mellon (BK): 1.7%
  • BlackRock (BLK): 2.7%

Together, these companies form 8.7% of the Vanguard Financials ETF (VFH).

State Street reported operating earnings per share of $1.21 in 4Q15. With a dividend per share of $0.34, the payout ratio stood at 28% versus 22% in 4Q14.

If the company continues to deliver double-digit growth in earnings per share, it will mean higher dividends per share. State Street’s share price should also find support from above-industry-average dividend yields.

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Stock repurchases

State Street repurchased $350 million worth of its stock in the fourth quarter at an average price of $70.44 per share versus the current price of $52. The repurchase formed 1.3% of the company’s total market capitalization.

The company also has $850 million remaining in stock purchases on its March 2015 stock purchase program, which runs through June 30, 2016.

Over the past six months, the stock has fallen 31% due to the slowing economy. State Street is attracting ETFs funds, but this inflow is offset by withdrawals from institutional players. The company’s expense management program can help improve margins and, consequently, dividends and share repurchases.

The company’s ownership pattern is dominated by mutual funds, financial institutions, and ETFs. This pattern also reflects the stability that investors see in the stock’s performance.

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