SunTrust Banks, Inc. (STI) announced that its capital deployment plan, submitted under Comprehensive Capital Analysis and Review (CCARF), has been approved by the Federal Reserve. Consequently, the company is expected to announce a dividend increase and has already authorized a new share repurchase program.
SunTrust authorized to repurchase $200 million shares. The repurchase will be completed between the second quarter of 2013 and the first quarter of 2014.
Further, SunTrust is contemplating a 100% hike in its quarterly dividend to 10 cents per share. It is expected to announce a dividend increase and payment of preferred dividend in Apr 2013. These initiatives will help SunTrust gain investors’ confidence.
In 2012, SunTrust failed to clear the stress test. As a result, the company did not enhance shareholder value and maintained its quarterly common stock dividend at 5 cents per share.
Moreover, in Jan 2011, SunTrust got authorization from the Fed to raise capital to repay TARP money of $4.85 billion, which it repaid in Mar, 2011. Alongside, SunTrust received authorization to hike its dividend by 400% from 1 cent per share.
In Jan 2013, along with SunTrust, 18 other banks submitted capital plans to the Federal Reserve for the stress test. Of the 18, the Federal Bank approved capital plans of 16 banks. Though BB&T Corporation (BBT) passed the stress test, its capital plan was not approved by the Federal Reserve and therefore it was barred from paying dividends or buying back shares.
However, after the approval of capital plan, Wells Fargo & Company (WFC) and Bank of America Corporation (BAC) announced their capital deployment activities. Wells Fargo plans to increase its dividend by 20% to 30 cents per share. Further, it plans to increase its share repurchase in 2013.
Moreover, BofA plans to repurchase stock worth $5 billion in 2014. Further, it will purchase $5.5 billion worth of preferred shares. However, it has no plans to increase its dividend payment.
SunTrust currently retains a Zacks Rank # 3 (Hold).
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