U.S. Bancorp CEO Boosts Dividend in Debut

On Tuesday afternoon, U.S. Bancorp (USB - commentary - Cramer's Take), the nation's sixth largest bank, boosted its quarterly dividend 21% to 40 cents a share. This compares with an average 12.7% increase over the past five years, and the Minnesota-based bank has now raised its payout 35 consecutive years. Investors at the close of trading Dec. 26 will qualify for the Jan. 16 payment.

The company said today that President and COO Richard Davis took office as its new CEO, replacing Jerry Grundhofer, who said in July he'd retire this year. Today's dividend boost was a debut performance, and I can't wait to see what he has ready for his encore.

At Tuesday's closing price of $34.38, U.S. Bancorp now yields an industry-high 4.65%, and I believe the stock is attractive for new capital. The company can cover the new dividend 1.8 times with expected 2007 earnings of $2.81 a share. While I generally prefer to see earnings two times in excess of a dividend to consider it secure, the bank also has an AA-rated balance sheet (second-highest level) and has posted positive earnings growth eight of the past 10 years.

U.S. Bancorp today reiterated its commitment to returning 80% of profits to investors in the form of dividends and stock buybacks, a strategy it's had since 2004. Over that time, the bank has given back $12.8 billion to investors, with 55% of it in the form of share repurchases and 45% in dividends.

I've said in the past that I like to see companies that both pay a consistent dividend and buy back stock, and U.S. Bancorp is the textbook example. Given its solid earnings growth and shareholder-friendly attitude, I believe the stock can generate a double-digit total return over the next year with limited downside potential.

In keeping with TSC's editorial policy, David Peltier doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.

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