Discover Financial Services Boosts Quarterly Dividend 14.3% (DFS)
By: Ned Piplovic,
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After cutting two-thirds of its quarterly dividend payout amid the financial crisis in 2009, Discover Financial Services (NYSE:DFS) resumed bosting its annual earnings distributions and continues that trend with the upcoming quarterly dividend hike of 14.3%.
Beside the 2009 quarterly dividend cut, the company paid a flat dividend the following year and then resumed its annual dividend boosts over the past eight consecutive years. In addition to hiking its quarterly dividend at least once every year for nearly a decade, the company maintained a relatively steady uptrend with only two noticeable pullbacks since 2010. Just over the past five years, the company combined its rising dividend and share price for a total return of more than 50% with the total return over the past 12 months exceeding 20%.
Discover’s low dividend payout ratio of 22% is in line with the company’s five-year average. The low payout ratio indicates that the current quarterly dividend distributions are well-covered by earnings and that the company should be able to maintain its rising annual dividends over the next few years.
Investors convinced that the share price and dividend payout growth will continue, should conduct their due diligence quickly and take a position prior to the company’s next ex-dividend date on August 22, 2018. Doing so will ensure eligibility for the next round of dividend distributions on the September 6, 2018, pay date.
Discover Financial Services (NYSE:DFS)
Based in Riverwoods, Illinois, and founded in 1960, Discover Financial Services operates as a direct banking and payment services company in the United States. The company’s Direct Banking segment offers Discover-branded credit cards to individuals, as well as other consumer products and services, including private student loans, personal loans, home equity loans and other consumer lending, Additionally, this segment offers also deposit products, such as certificates of deposit, money market accounts, savings accounts, checking accounts and individual retirement arrangement certificates of deposit. The Payment Services segment operates the Discover Network, which processes transactions for Discover-branded credit cards and provides payment transaction processing and settlement services. Additionally, this segment also operates the PULSE network, which is an electronic funds transfer network that provides financial institutions issuing debit cards on the network with access to automated teller machines and point-of-sale terminals. Furthermore, this segment also operates Diners Club International — a payments network that issues Diners Club branded charge cards and provides card acceptance services.
The company declared a 14.3% quarterly dividend from the $0.35 payout in the previous period to the upcoming $0.40 quarterly dividend payout. Since resuming dividend hikes in 2010 the company advanced its annual dividend payout amount 20-fold, which is equivalent to an average growth rate of more than 45% per year.
The new quarterly dividend amount corresponds to a $1.60 annualized distribution and a 2.2% dividend yield, which is more than a third above the company’s 1.6% average yield over the past five years. Furthermore, the company’s current yield is also 5.5% higher than the 2.04% average yield of the entire Credit Services industry segment.
Like the annual dividend distributions, the company’s share price has been rising for nearly the past decade since the 2008 financial crisis. After spiking briefly in late 2017, the share price has returned to its average rising trend it held over the past two years. Just prior to the beginning of the late-2017 spike, the share price reached its 52-week low of $57.66 on September 8, 2017. After spiking more than 40% towards its 52-week high of $81 on January 29, 2018, the share price gave back some of those returns as settled into the previous average trend by closing on August 13, 2018, at $74.33. This closing price was approximately 8.5% lower than the January peak price, but still almost 23% higher than it was 12 months ago, nearly 30% above the September low and 50% higher than it was five years ago.
The company’s upcoming quarterly dividend hike and the asset appreciation blended into a total return on shareholders’ investment of nearly 27%. Additionally, the company rewarded its shareholders with a total return of more than 40% over the past three years, as well as a total return of almost 60% over the last five years.
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