Sallie Mae Enhances Shareholder Value

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SLM Corp. (NasdaqGS:SLM - News), commonly known as Sallie Mae, remains committed to boosting investors’ confidence through dividend increases and share buybacks. The company announced a 25% hike in its quarterly dividend to 12.5 cents per share from 10 cents. Alongside, the company declared a $500 million share buyback program.

The increased dividend will be paid on March 16, to shareholders of record as of the close of business on March 2. The share buyback program has no expiration date.

Furthermore, SLM declared a 2012 second-quarter dividend on its Preferred Stock Series B of $0.5179695 per share, payable on March 15, to preferred Series B shareholders of record as of the close of business on March 5. It also scheduled its 2012 Annual Meeting of Shareholders on May 24.

Last week, SLM reported fourth-quarter 2011 core earnings of $268 million or 51 cents per share, a penny above the Zacks Consensus Estimate. Improvements in net interest income, loan loss provision, expenses and discontinued operations supported the core earnings figure.

During the first-quarter 2011 earnings release, SLM declared a quarterly dividend of 10 cents per share on its common stock for the first time since early 2007. Moreover, the company also announced a share repurchase authorization of up to $300 million of outstanding common stock in open-market transactions. In 2011, the company completed this share repurchase authorization by buying back 19.1 million common shares for $300 million.

We believe that such shareholder-friendly efforts on SLM’s part would inspire investors’ confidence in the stock. Moreover, its leading position in the student lending market, cost curtailment initiatives and the federal student loan assets acquisition augur well.

The acquisition of $25 billion in securitized federal student loan assets from The Student Loan Corporation, a Citigroup Inc. (NYSE:C - News) subsidiary, in December 2010, augmented its customer base by approximately 1.3 million and promises earnings accretion going ahead.

Though pausing new federal student loan origination, to comply with the legislation, would affect revenue generation at student lenders like SLM and Nelnet Inc. (NYSE:NNI - News), we believe that the company’s diversifying efforts coupled with a slow economic recovery would bolster its earnings by expanding its private education loan business and reducing its loan loss provision expenses.

SLM retains a Zacks #2 Rank, which translates into a short-term Buy recommendation.

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