Recently, Capitol Federal Financial, Inc.CFFN announced the completion of its share repurchase program. The company, in total, repurchased 14.6 million shares for $175 million over a period of almost three years (the share buyback was authorized in Nov 2012).
However, Capitol Federal has a rather weak history as far as share repurchases are concerned. Notably, the company bought back shares worth $368 million over a span of roughly five years. The company's first buy-back program, authorizing $193 million, was announced in Dec 2010.
Despite its unimpressive share repurchase activity, Capitol Federal has a decent dividend payment record. The company pays a regular quarterly cash dividend of 8.5 cents per share, which was last raised 13.3% in Jan 2015. The current dividend yields 2.84% annually.
Additionally, Capitol Federal pays a special dividend called 'True Blue Capitol' on a half-yearly basis. The latest one, of 25 cents per share, was paid in Jun 2015, aggregating to nearly $34 million.
What Does Management Say?
Capitol Federal intends to announce a new share repurchase authorization. As of Jun 30, 2015, the company's cash and cash equivalents stood at $46.7 million. Additionally, the company had $74 million of deposit at Capitol Federal Savings Bank.
Further, for fiscal 2015, Capitol Federal plans to continue with payout of 100% of its earnings. This will be disbursed in form of regular quarterly dividends and a special year-end cash dividend equal to earnings in excess of the amount already paid as regular dividends.
What Should Investors Do?
Though Capitol Federal's financial performance has remained steady over the years, we believe income investors should consider the following metrics before taking a plunge:
Price-to-Earnings Ratio: Capitol Federal's P/E ratio of 20.66 is above the industry average of 15.45. This makes the stock overvalued.
Leverage: Capitol Federal's debt/equity ratio stands at 1.96 compared with the industry average of 0.75, indicating higher debt level relative to the industry.
Value Score: Capitol Federal has a Value Style Score of 'D'. The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of 'value traps' and identify stocks that are truly trading at a discount. Our research shows that stocks with Style Scores of 'A' or 'B', when combined with Zacks Rank of #1 (Strong Buy) or #2, offer the best upside potential.
Zacks Rank: Capitol Federal currently carries a Zacks Rank #3 (Hold). This is owing to the Zacks Consensus Estimates remaining unchanged over the last 60 days, for both 2015 and 2016.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.