In an effort to share more profit with investors, the board of directors of XL Group plcXL increased its dividend by 10% and approved a $1 billion share buyback program. The insurer will now pay a quarterly dividend of 22 cents per share as against 20 cents paid in Jan 2017.
Shareholders on record as of Mar 15, will have the meatier dividend in their pockets on Mar 31, 2017. With the increase the annualized rate comes to 88 cents per share. Based on the closing share price of $40.95 as of Feb 17, the increased payout translates to a dividend yield of 2.1%. XL Group has a solid track of increasing dividend each year. In Aug 2015, the board had approved a 25% increase in dividend.
Concurrently, the board authorized the company to buy back up to $1 billion worth shares. The earlier authorization, which had $349 million remaining, has been replaced. In 2016, XL Group bought back approximately 30.2 million shares worth $1.1 billion.
XL has a strong capital management policy in place. The company's initiatives are supported by its solid cash flow generation, which in turn, is driven by sustained solid operational performance.
Shares of XL Group have been outperforming the Zacks categorized Property, Casualty and Title Insurance industry since it posted better-than-expected fourth-quarter earnings. While XL Group shares appreciated 7.96%, the industry gained 3.39%.
However, this Zacks Rank #3 (Hold) insurer showed year-over-year decline in the fourth quarter. Also, the Zacks Consensus Estimate has been revised downward over the last few weeks. Hence, the company's announcement of the divided hike and share buyback program appears to be a prudent move to retain investor confidence in the stock.
Dividend hikes and share buybacks not only testify to the operational and financial strength of a company, but also make a stock attractive for yield-seeking investors. Last month, the board of directors of HCI Group, Inc. HCI increased its dividend by 16.7%. This month, the board of directors of AXIS Capital Holdings Limited AXS approved a share repurchase program of $1billion at the earnings release. The buyback plan is effective through Dec 31, 2017. Another insurer, Willis Towers Watson plc WLTW , approved a 10% increase in dividend to 53 cents per share.
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