AIG is returning capital to shareholders
AIG’s 4Q14 and fiscal 2014 earnings: Key takeaways (Part 6 of 15)
Returning capital
A company can return capital to shareholders through share repurchases, dividend payouts, or a combination of both. A company that pays consistent dividends provides a regular source of income for long-term shareholders.
Dividends
AIG announced a 4Q14 dividend of $0.125 per share. AIG has been consistently paying dividends since 3Q14 to its shareholders, and increased per share dividends from 10 cents a share to 12.5 cents a share in 1Q14. However, the company’s dividend payout ratio, which determines the portion of accounting earnings being paid out as dividends, has remained low. AIG returned over $700 million capital in the form of cash dividends to shareholders in 2014.
Share repurchase
AIG undertook ~$1.5 billion of share repurchases in 4Q14 as part of its share repurchase program, which was around 28 million common equity shares. This added up to $4.9 billion share repurchases for the full year 2014. AIG announced a further $2.5 billion share repurchase.
Management highlighted the possibility of returning $6–$7 billion of capital to shareholders in 2015, in forms of share repurchases and dividends. The company appears to be sanguine about the capital flows in the life insurance business and improved risk profile of the property and casualty business.
Other insurers are also repurchasing their shares and returning capital to shareholders. For example, ACE (ACE) repurchased $430 million worth of shares, Chubb (CB) repurchased $346 million shares, while Allstate (ALL) undertook a share repurchase of ~$250 million in 4Q14.
In the next two articles, we’ll look at how AIG is trying to improve its balance sheet.
Investors can gain exposure to insurance companies by investing in financial sector ETFs like the Financial Select Sector SPDR ETF (XLF) and the iShares US Financials ETF (IYF).
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