Is Fifth Third Bancorp Stock Worth Watching Post a 6% Dividend Hike?

Fifth Third Bancorp FITB rewards shareholders by increasing its quarterly dividend. The company declared a cash dividend of 37 cents per share for third quarter 2024. 

This reflects a 6% hike from the prior payout. The dividend will be paid out on Oct. 15, 2024, to shareholders of record as of Sep. 30, 2024.

Before the latest hike, FITB increased its dividend by 6.1% to 35 cents per share in September 2023. The company hiked its dividend five times in the past five years, with an annualized dividend growth of 8.6%.

FITB's current payout ratio is 40% of its earnings. This indicates that it retains adequate earnings for reinvestment and future growth initiatives while still delivering decent returns to shareholders.

Other finance stocks like U.S. Bancorp USB and Northrim BanCorp, Inc. NRIM also rewarded their investors with an increase in dividends. 

This month, USB declared a regular quarterly dividend of 50 cents per common share, marking an increase of 2% from the prior payouts. In August, NRIM hiked its dividends by 1.6%, from their prior payout of 61 cents.

Fifth Third's Share Repurchase Plan

Apart from regular quarterly dividend payouts, FITB has a share buyback program in place.

On July 22, 2024, the company initiated an accelerated share repurchase agreement with a counterparty, through which it paid $200 million on July 23 to repurchase shares of its outstanding common stock. FITB bought back shares of its common stock under the plan of the 100-million shares announced on June 18, 2019. As of June 30, 2024, 28.6 million shares remain available under the authorization. Going forward, it expects to repurchase $200 million worth of shares for each remaining quarter of 2024.

The company's focus on maintaining a strong liquidity position will support its capital distribution activities. 

As of June 30, 2024, the company's total liquidity of $23.9 billion exceeded its total debt (comprising long-term debt and other short-term borrowings) of $19.7 billion, reflecting manageable debt levels. Its decent cash levels are likely to boost investors' confidence in the stock. As of June 30, Fifth Third's common equity tier 1 ratio was 10.6%. 

Supported by its resilient balance sheet and strong capital position, the company is expected to continue with efficient capital distribution activities.

Should Investors Consider Watching FITB?

Fifth Third has been witnessing steady organic growth. Its earnings and revenues witnessed a positive trend in the past years.

EPS Growth Trend

Revenue Growth Trend

Further, FITB's near-term outlook also looks bright. At a recently-concluded Barclays conference, Fifth Third provided an update on its third-quarter outlook. The company expects total revenues to rise 2-3% sequentially in the third quarter from its baseline of $2.2 billion compared with the previous guidance of a 1-2% increase.

Supported by its resilient balance sheet and strong growth profile, the company is expected to continue with efficient capital distribution activities. Also, the latest proposed plan by the regulators will likely support its capital distribution plan.

This month, the Federal Reserve Board's vice-chair of supervision, Michael Barr, announced an outlined proposed Basel regulation which, if approved, exempts medium-sized banks  (with between $100 billion and $250 billion in assets), including Fifth Third, from stringent standards of increased capital requirements.  For these banks, the impact of the re-proposal would mainly result from the inclusion of unrealized gains and losses on their securities in regulatory capital, estimated to be equivalent to a 3-4% increase in capital requirements over the long run. 

This new capital requirement plan will turn out to be beneficial for FITB as the amount can be utilized for increased capital distribution. Through this, Fifth Third will keep enhancing shareholders' value.

FITB expects its commercial payments to be a $1-billion business in the next five years, driven by accelerated growth in its commercial payment platform through strategic partnerships.

Apart from rewarding its shareholders handsomely, FITB also has bright future prospects which make it a fundamentally strong pick. 

In the past six months, shares of Fifth Third have surged 19.9% compared with the industry's growth of 7.5%. 

Six-Months Price Performance

Image Source: Zacks Investment Research

From a valuation standpoint, the firm appears somewhat expensive relative to the industry. The company is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 12.05X, above the industry average of 11.08X.

P/E F12M

Image Source: Zacks Investment Research

Hence, investors should not rush to buy FITB stock. Instead, they should keep a close eye on this Zacks Rank #3 (Hold) stock and wait for a better entry point.

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