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Discover Financial to Return More Capital, Passes Stress Test

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Discover Financial Services DFS recently announced that it has been notified by the Board of Governors of the Federal Reserve System that the regulatory body has no objections to the company’s capital actions through Jun 30, 2019.

Per the company’s capital plan, it would increase its next quarterly dividend from 35 cents to 40 cents per share of common stock. During the four quarters ending Jun 30, 2019, it has also approved a share repurchase of up to $1.85 billion, reflecting its commitment to generate long-term value for shareholders.

The board of directors is anticipated to approve a dividend hike and a new share buyback program at its July meeting. The new repurchase program would be replacing the present one.

The passage of the company’s capital plan is indicative of its stable capital structure even under stress-test scenarios. This also implies that a planned capital deployment including dividend hikes and share buybacks are viable and acceptable in relation to the regulatory body’s minimum capital requirements. This should further cement investor's confidence in the company.

Last reported quarter, the company delivered a strong performance with the bottom line beating estimates by 2.8%. This better-than-expected result carried on its positive earnings streak of from the preceding two quarters. Going forward, we expect the company to continue well with the winning trend, driven by its revenue momentum, a strong direct banking business, soaring card sales volume and an effective capital management.

Recently, other companies like American Express Co. AXP and Huntington Bancshares Incorporated HBAN also announced that they will raise the quarterly dividend by 11.4% and 27%, respectively, post the Fed stress test. The companies also approved a respective $3.4 billion and $1.068 billion of common stock share buyback activity. Whereas, Capital One Financial Corporation COF expects to maintain its quarterly dividend at 40 cents per share, subject to approval by its Board of Directors apart from announcing a share repurchase of up to $1.2 billion of the company’s common stock.

Shares of this Zacks Rank #3 (Hold) company have rallied 13.07% in the past year, outperforming the industry’s growth of 1.90%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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