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Fifth Third: Dividend and Buyback Winner

NEW YORK ( TheStreet) -- Fifth Third (FITB - Get Report) set itself up to be Wednesday's financial winner, announcing a large share buyback after Tuesday's market close.

The Cincinnati lender's shares had risen slightly to close at $14.39 on Tuesday, but were up 4% in aftermarket trading, after Fifth Third announced that its revised capital plan had been approved by the Federal Reserve.

Fifth Third's board of directors authorized the repurchase of up to 100 million shares through the first quarter of 2013 -- worth $1.4 billion at Tuesday's close -- on top of the remaining 14 million shares authorized for repurchase under the company's previous buyback plan. The company also announced a "potential increase of the quarterly common stock dividend to $0.10 in the third quarter of 2012."

Fifth Third currently pays a quarterly dividend of eight cents a share, for a yield of 2.22%.

The Federal Reserve in March had only partially approved Fifth Third's annual capital plan, which included an increase in the dividend on common shares and repurchases of common shares. The Fed only approved the company's plan to repurchase $1.4 billion in trust preferred securities and repurchases of common shares in amounts equal to after-tax gains from the sale of shares in Vantiv (VNTV), Fifth Third's former payment processing subsidiary, which went public during the first quarter.

Fifth Third's shares have now returned 14% year-to-date, following an 11% decline during 2011.

The shares trade for 1.2 times their reported June 30 tangible book value of $11.89, and for nine times the consensus 2013 EPS estimate of $1.54, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $1.58.

Please see TheStreet's earnings coverage for details on Fifth Third's second-quarter results.

JPMorgan Chase analyst Vivek Juneja has a neutral rating on Fifth Third, with a price target of $17.50, and said Monday that "FITB's stock valuation is in line with [the] peer average," and that he expects the company "to trade at a slight discount to the expected [large-cap bank] peer group multiple of 1.5x owing to a relatively weaker footprint and recent track record."
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