In a concerted effort to return more value to shareholders, the board of directors of XL Group plc (XL) approved a share repurchase program along with a hike in dividend.
The board approved a dividend of 14 cents per share, which represents a 27% increase over the last paid dividend. The increased dividend will be paid on Apr 1, 2013 to the shareholders of record as of Mar 15, 2013. This amounts to an annualized dividend yield of nearly 2% based on the closing share price of $28.99 on Feb 22, 2013.
This is also ahead of other property and casualty insurers like Allied World Assurance Company Holdings, AG (AWH) with a dividend yield of 1.7%, and American Financial Group Inc (AFG) with a dividend yield of 1.75%, among others.
Recently, the board of directors of Assured Guaranty Ltd. (AGO), a multi-line-insurer, approved an 11% increase in its quarterly dividend. Assured Guaranty will now pay a quarterly dividend of 10 cents per share, up from 9 cents.
Based on 310 million shares outstanding as of Dec 31, 2012, the company requires $43.4 million for the payment of the quarterly dividend.
Concurrently, with the new buyback approval, the company is now authorized to repurchase shares worth $850 million. The new buyback approval automatically replaces the $250 million worth of shares still available for repurchase. This remaining amount was a part of the $750 million share buyback program approved in Feb 2012.
In the fourth quarter, XL Group spent $51.7 million to buy back 2.1 million shares taking the full year tally to 18.3 million shares repurchased for $41.7 million. Subsequently through Feb 7, XL Group bought back 3.8 million shares for $98.3 million.
It is likely that the news of the dividend increase as well as a new share buyback program helped the share price move up 1.9%. With a strong balance sheet and its ability to generate healthy cash flow, we expect the company to indulge in more buybacks or increase dividend payout going forward, thereby sharing more profits with the shareholders.
Over the last 7 days, only 1 out of 17 analysts raised estimates for 2013, while no estimates were raised for 2014. We believe that the company’s effort to return more value to shareholders might encourage analysts to pull their estimates upward. The Zacks Consensus Estimate for 2013 and 2014 are currently pegged at $2.54 and $2.76 per share, respectively.
XL Group carries a Zacks Rank #1 (Strong Buy).
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