14 May

How Citigroup Is Rewarding Shareholders in 2018

WRITTEN BY Robert Karr FEATURED IN Company News, Insights, & Analysis

Raising rewards

Bankers (XLF) have improved their payout ratio in the recent quarters helped by improved operating performance and the passing of stress tests. The dividend yields have risen to ~2.0% to 3.0%, whereas repurchases have risen at a relatively fast pace. Buybacks have helped bankers in expanding return on equity (or RoE) amid subdued credit offtake.

Citigroup (C) rewarded shareholders with $3.1 billion in the form of dividends and repurchases in 1Q18 as compared to net profit of $4.6 billion during the same period, forming a payout ratio of 67.4% in line with the 2017 payout ratio.

How Citigroup Is Rewarding Shareholders in 2018

Citigroup could target payouts through dividends and buybacks of ~$15 billion to $18 billion in 2018. The bank paid out $6.3 billion in 4Q17, higher than its net income. In 2017, it paid out $17.1 billion, which was 9.2% of its total market capitalization. In 1Q18, Citigroup paid total dividends of $826 million, or $0.32 per share, and had an implied annualized dividend yield of 1.9%. Its peers’ dividend yields were as follows:

  • Wells Fargo (WFC): 3.0%
  • Bank of America (BAC): 1.6%
  • JPMorgan Chase (JPM): 2.0%

Buybacks amid rising flows

Banks have benefited from higher rate spreads, trading activity, rising loans and deposits, and lower taxes resulting in higher operating cash flows. As a result, they are targeting higher buybacks to improve shareholder returns. Citigroup bought back 30 million shares for $3.3 billion in 1Q18 compared with $5.5 billion in 4Q17. Citigroup’s return on total capital employed rose to 11.4% in 1Q18 from 7.5% in 4Q17. Payouts are expected to remain buoyant amid higher operating cash flows and subdued valuations for Citigroup.

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