SLM Corp.
(
SLM
), commonly known as Sallie Mae, remains committed to boost
investors' wealth. Yesterday, the company announced the
authorization of $400 million for share buyback activities revealed
in January. This is in addition to the $500 million which was
authorized at that time.
The buyback program has no expiration date. Sallie Mae has
already bought back 16.7 million shares of common stock for $268
million during the first quarter of 2012.
Besides announcing the additional authorization for share
repurchases, Sallie Mae has declared a second quarter common stock
dividend of 12.5 cents, payable on June 15, 2012, to shareholders
of record as of the close of business on June 1, 2012. Notably, the
company had hiked its dividend by 25% in January this year.
Furthermore, Sallie Mae declared a 2012 third-quarter dividend
on its Preferred Stock Series A of $0.87125 per share, payable on
July 30, 2012, to shareholders of record as of the close of
business on July 20, 2012. The company also declared a 2012
second-quarter dividend on its Preferred Stock Series B of
$0.5554883 per share, payable on June 15, 2012, to shareholders of
record as of the close of business on June 5, 2012.
Our Take
We believe that such shareholder-friendly efforts by Sallie Mae
would inspire investor confidence in the stock. In fact, it was
during the first-quarter 2011 earnings release that Sallie Mae
declared a quarterly dividend of 10 cents per share on its common
stock for the first time since early 2007.
Moreover, the company also announced a share repurchase
authorization of up to $300 million of outstanding common stock in
open-market transactions at that time. In 2011, the company
completed this share repurchase authorization by buying back 19.1
million common shares for $300 million.
Besides boosting investors' wealth, Sallie Mae's leading
position in the student lending market and the federal student loan
assets acquisition augur well. After the legislation stopped
private student lenders from originating federal student loans,
Sallie Mae is actively seeking to diversify its business and
originate more private education loans.
Though the legislative actions challenged the company's business
model, we expect Sallie Mae to benefit from the Department of
Education's servicing contract, under which it services and
collects government guaranteed loans. Given its low-cost business
structure, we believe this new role will support Sallie Mae's
profitability and help produce an acceptable risk-adjusted
return.
While such efforts are encouraging, we believe it would take
some more time for the company to reap the benefits of
transitioning to its business model. But despite challenges, we
anticipate that the company's cost containment efforts would help
it navigate through the current cycle.
Notably, one of Sallie Mae's peers,
Nelnet Inc.
(
NNI
) authorized a new share buyback program earlier in May, to
repurchase up to a total of 5 million shares of its Class A common
stock during the three-year period ending May 24, 2015.
Sallie Mae retains a Zacks #3 Rank, which translates into a
short-term Hold recommendation. Considering the fundamentals, we
have a Neutral recommendation on the stock.
NELNET INC CL-A (NNI): Free Stock Analysis
Report
SLM CORP (SLM): Free Stock Analysis Report
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