Can Citigroup’s Dividend Hike Boost Its Poor Valuations?



Citigroup raised dividends to $0.16

In June, Citigroup (C) raised its quarterly dividend nearly three-fold to $0.16 from $0.05 after it cleared stress tests. This payout, effective from the third quarter, would raise its dividend yield to 1.5%. It would raise its payout ratio to 69% from 47% in 2015. Citigroup will also increase its common stock repurchase program to $8.6 billion starting in 3Q16. This is a significant rise from $7.8 billion announced in last year’s stress tests. Citigroup’s planned capital actions totaled $10.4 billion in the form of dividends and buyback over 12 months. This is important for investors in Citigroup. The bank (XLF) failed these stress tests on two previous occasions. Currently, its shares are beaten down and trade below book value. The news of its dividend hike and share repurchase plans will be welcomed by shareholders. It could boost its valuations.

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In the pre-recession era, Citigroup was famous for paying out high dividends to its investors. However, when the recession hit, the company slashed dividends and stopped them completely until 1Q11. For the next 15 quarters, the company paid small dividends of $0.01 per share. It was hiked to $0.05 in 2Q15.

Currently, Citigroup is one of the lowest dividend-paying stocks among its peers such as Bank of America (BAC), JPMorgan Chase (JPM), and Wells Fargo (WFC). For 2Q16, it announced dividends of $0.05 per share—flat on a quarterly basis. In 2015, the company paid dividends of $0.16 per share.


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