AIG Strong Earnings Dwarfed by Dividend and Stock Buyback Surprise

Jon C. Ogg
August 1, 2013

American International Group Inc. (AIG) may have been considered "public enemy number one" during and after the financial crisis, but that was then and this is now. The company has removed the U.S. Treasury as a shareholder and paid back taxpayers with a profit sooner than many of us expected. Business is doing well enough at AIG that the insurance giant is doing incredibly well in earnings. To prove a point, AIG is even reinstating a dividend and common stock buyback plan. Yes, really!

AIG will introduce a $0.10 common dividend and announced that to plans to repurchase $1 billion of its own common stock. This is on the heels of it earning $2.73 billion in adjusted earnings during the second quarter, up from $2.33 billion for the same period a year ago. The after-tax core operating profit was $1.66 billion, which translates to $1.12 in earnings per share. Thomson Reuters was calling for estimates of $0.85 per share.

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We would have expected a dividend at some point, but for this to come before the sale or initial public offering (IPO) of its aircraft leasing unit is more than a surprise. It is our understanding that AIG may now do an IPO since the deal to sell the majority stake in that unit seems to be dead or at risk.

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AIG's gains came from the property-casualty business, life and retirement insurance, alternative investments, investment income and risk monitoring. AIG's shares closed up 3.4% at $47.07 on the day, just short of its yearly high of $47.68. Now it appears that AIG is trading up more than 5% at $49.50 or so in the after-hours session. That just makes another annual high and post-crash high for AIG shares.

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A dividend and buyback were expected at some point, but this is sooner than we would have guessed. Make that much sooner!

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