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(C) - Get Report

is poised to return substantially more capital in 2012 to shareholders than the token amounts the market is expecting, according to Buckingham Research analyst Jim Mitchell.

Reiterating a buy on the stock following a meeting with the management, the analyst said he expects Citigroup to pay a quarterly dividend of 15 cents per share in 2012, compared to the paltry penny a share it pays now. And that would just be a "modest start."

Mitchell forecasts Citigroup to return $65 billion worth of excess capital over time through dividends and buybacks. The excess capital is worth $13.70 per share or 58% of the current stock price in present value.

Mitchell's underlying thesis is that Citigroup is making solid progress towards meeting the capital requirements under Basel III.

With an expected Basel I Tier 1 Capital of 12.1%, Citi is well positioned for the

Federal Reserve's

stress test. More importantly, the bank is already on track to achieve a Basel III Tier 1 ratio of 7% by the end of the fourth quarter of 2011, according to the analyst, a "critical level for the Fed in determining how aggressive banks can be in raising dividends and buying back stock."

If Citigroup is authorized to return capital and targets a tier 1 capital ratio of 8.6% to 8.8% by the end of 2012, it is likely to use 19% to 38.5% of its profits for dividends/buybacks. Citi is likely to sweeten the dividend paid out to make the stock attractive for dividend-seeking investors. But even after paying out a quarterly dividend of 15 cents per share or 60 cents per share annually, it would still have between $760 million and $3.4 billion for buybacks.

Overall, Buckingham Research believes Citi's stock is materially oversold. "While we understand that fear over European contagion remains the primary driver of C and other global financial stocks in the near-term, we believe C's European exposures are manageable and its liquidity and capital profile are among the strongest in the industry."

The analyst has a price target of $46 on the stock, representing a more than 80% upside from current levels.

--Written by Shanthi Bharatwaj in New York

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