Fifth Third: Dividend and Buyback Winner

NEW YORK ( TheStreet) -- Fifth Third ( FITB) 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."

Interested in more on Fifth Third Bancorp? See TheStreet Ratings' report card for this stock.

The broad indexes on Tuesday all ended in the red, after Federal Reserve Bank of Atlanta president Dennis Lockhart said that the U.S. economy's recovery "has seen weak growth and persistently high unemployment," and that "by any number of measures, the strength of the recovery has been and remains disappointing." Lockhart added that "real personal income (excluding government transfer payments) is still 1.5 percent below what it was before the recession in late 2007."

Despite that grim assessment, the Atlanta Fed president put a damper on expectations for a further round of quantitative easing by the Federal Reserve, saying during a speech before the Latin American Chamber of Commerce and the World Affairs Council in Atlanta that "this condition can be attributed, at least in part, to fundamental imbalances that have not yet been corrected, a situation that presents formidable challenges for monetary policymakers."

"There is a risk to monetary policy being employed too aggressively and without effect to address economic problems that can be resolved only by fiscal reforms that involve making tough choices about the allocation of public resources," he said."

The KBW Bank Index ( I:BKX) rose slightly to close at 47.47, although only eight of the 24 index components showed gains for the session.

Share of Citigroup ( C) rose 2.5% to close at $30.73. The shares have now returned 17% year-to-date, following a 44% decline during 2011.

Citi's shares trade for 0.6 times their reported June 30 tangible book value of $51.81, and for 6/8 times the consensus 2013 earnings estimate of $4.54, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $4.09.

Juneja has a neutral rating on Citi, "as increased capital return in 2012 had been a key catalyst for the stock and the Fed's refusal to approve Citi's capital return plan and Citi's decision to not ask for return in the resubmission pushes this out to 2013."

The analyst listed several long-term catalysts for Citigroup's shares, including the low price multiples; "strong and growing capital levels;" international revenue growth opportunities, as the company's business outside the U.S. accounted for 40% of revenues during 2011; a "sizeable amount of loan loss reserves," and the "long run potential for return of excess capital to shareholders."

Interested in more on Citigroup? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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