American International Group (AIG) has stated that it will return $25 billion to its shareholders in 2016 and 2017. This is equivalent to 40% of its market capitalization. AIG will execute this plan through a combination of share buybacks and dividends. The company can buy more shares since the price has been cut in half and the stock is trading at a book value of 0.69x. The company deploys its capital on new initiatives, technology upgrades, and expansion of product lines to increase its global presence. In 2016, the company will initiate select investments in technology and innovation and return capital to its shareholders.
In the March quarter, AIG declared a 156% rise in its quarterly dividend to $0.32 per share on a year-over-year basis. That translates to an annualized dividend yield of 2.3%. Its dividend yield has remained on par with those of other players in the Financial Select Sector SPDR Fund (XLF).
Other insurers have also repurchased their shares and returned capital to shareholders. Chubb (CB) has a dividend yield of 2.3%, Allstate (ALL) has a yield of 2.0%, and MetLife (MET) has a yield of 3.6%.
Lower valuations backing buyouts
In the first quarter of 2016, AIG repurchased approximately 63 million shares, or 5.6% of its total outstanding shares, for was an aggregate purchase price of $3.5 billion. The company made additional repurchases of approximately $870 million through May 2, 2016.
AIG authorized the repurchase of additional shares with an aggregate purchase price up to $5.0 billion. The company also increased its quarterly dividend by 156% to $0.32 per share. AIG aims to return at least $25 billion to shareholders by 2017.
AIG appears to be optimistic about capital flows in the Life Insurance business as well as the improved risk profile of the Property and Casualty business. However, it’s facing a huge dent from returns in alternative investments.