Following the Federal Reserve’s approval of its comprehensive capital plan (CCP), Bank of New York Mellon Corporation (BK) joined the other U.S. banks in announcing quarterly dividend increase and share repurchase.
BNY Mellon declared a quarterly cash dividend of 13 cents per share, payable on May 10, 2011 to shareholders of record at the close of business on April 29, 2011. Hence, the annual dividend payable to shareholders now stands at 52 cents per share, a jump of 44% from the prior annual dividend of 36 cents.
In July 2007, BNY Mellon had last increased its quarterly dividend to 24 cents per share from 23.32 cents. Thereafter, due to the financial crisis and challenging global economic environment, the company lowered its quarterly dividend to 9 cents per share in April 2009. Thus, the present increase in annual dividend is a sort of recovery, as the company had paid 96 cents per share prior to the recession.
Further, the board of directors of BNY Mellon also approved an increase to the present share repurchase program. The company stated that it would buy back $1.3 billion worth of common stock through the end of 2011. In 2007, the company had announced a share repurchase plan, authorizing buyback of 35 million shares and had no timeline for the same. As of December 2010, there were 33.8 million shares available for repurchase under the same plan. In total, approximately 47 million shares are available for repurchase now, representing about 4% of the total common shares outstanding.
In January, BNY Mellon along with 18 other banks including Wells Fargo & Company (WFC), State Street Corp. (STT) and JPMorgan Chase & Co. (JPM) had submitted their CCP to the Fed requesting approval for additional share repurchases and hike in quarterly dividend. As expected, a positive response for the company came through on March 18.
BNY Mellon’s closest peer, State Street announced an increase in its quarterly dividend to 18 cents per share and repurchase $675 million worth of stock in 2011. Similarly, JPMorgan and Wells Fargo have also announced their plans for dividend increase and share repurchase.
Though BNY Mellon is well positioned to benefit from favorable long-term wealth management trends and a secular growth in global capital markets, we expect interest-bearing deposit costs to rise faster than asset yields and the low rate environment to persist, thereby negatively impacting net interest margin as well as net interest income. However, the recent acquisitions are likely to reinforce the financials to a great extent. Further, BNY Mellon’s decision to restore dividend and authorize a new share repurchase program will surely enhance the investors’ confidence on the stock.
Currently, BNY Mellon retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Also, considering the fundamentals, we are maintaining a long-term “Neutral” recommendation on the stock.
BANK OF NY MELL (BK): Free Stock Analysis Report
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STATE ST CORP (STT): Free Stock Analysis Report
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