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State Street (STT) Jumps on Additional Q4 Share Buyback Plan

A week after mutually agreeing with Brown Brothers Harriman & Co. (“BBH”) to terminate the proposed acquisition of BBH’s Investor Services business, State Street STT announced additional share repurchases. The company intends to buy back $500 million worth of shares during the fourth quarter of 2022. This brings the total authorization to $1.5 billion for the quarter.

Also, State Street plans to return more than 80% of its earnings next year. The company chairman and CEO, Ron O’Hanley said, “We recognize the priority our shareholders place on capital return, and we continue to expect to use dividends and share repurchases to return significantly more capital than our medium term target payout of 80% of earnings in 2023.”

Hence, the investor-friendly decision was cheered by the market participants, and STT’s share price soared 8.2% yesterday. Another reason for the bullish stance is that many banks are doing away with share repurchases and dividend hikes on higher capital requirements and deteriorating economic outlook. One such big name is JPMorgan JPM. The company, in order to meet higher future capital requirements amid macroeconomic woes, temporarily suspended buybacks. Also, JPM kept the quarterly dividend unchanged at $1 per share despite clearing the 2022 stress test in June.

State Street paused share repurchases at the time of announcing the transaction to acquire the above-mention business in September 2021. However, the deal faced unprecedented delays. So, on Nov 30, both companies decided to terminate the agreement as it wasn’t “in the best interests of clients, shareholders or employees to continue to invest time and resources in the transaction in this challenging financial services M&A environment.”

Further, following the clearance of the 2022 stress test, State Street announced a 10% increase in the quarterly dividend to 63 cents per share in July 2022. Considering the last day’s closing price, STT’s dividend yield currently stands at 3.39%. The yield is attractive for income investors and represents a steady income stream.

State Street remains well-poised with respect to fundamental business activities, given the global exposure, higher interest rates and a broad array of innovative products and services (including the launch of State Street Digital and State Street Alpha). These efforts, along with new business servicing wins and inorganic growth strategy, are expected to keep supporting revenues.

So far this year, shares of this Zacks Rank #3 (Hold) company have lost 13.5% compared with the industry’s decline of 20%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Last week, Raymond James Financial, Inc. RJF announced enhanced capital deployment plans, including a dividend hike and a new share buyback program. RJF's board of directors has announced a quarterly cash dividend of 42 cents per share, representing an increase of 24% from the prior payout. The new dividend will be paid out on Jan 17, 2023, to shareholders on record as of Jan 3, 2023.

Also, Raymond James' board authorized the repurchase of its shares of common stock, aggregating to $1.5 billion, with no expiration date. The authorization is higher and replaces the previous buyback authorization of $1 billion announced last December. Under the previous program, around $800 million remained as of Dec 1, 2022.

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