CIT Group Plans 50% Dividend Hike - Analyst Blog

In order to boost shareholders' returns, CIT Group Inc. CIT intends to raise its quarterly cash dividend by 50% from the third quarter of 2014. This was announced by the Chairman and CEO, John Thain at the Investors Day conference. Notably, the hike is still subject to the approval of the board of directors.

At present, CIT Group pays 10 cents per share as quarterly dividend. With the 50% rise, the dividend yield would increase to 1.3% from 0.9%, based on the closing price of Jun 25.

CIT Group had resumed dividend payouts in Oct 2013 following the termination of its agreement with the Federal Reserve Bank of New York. The agreement had restrained the company from deploying capital without prior approval.

Moreover, CIT Group has a steady share repurchase program in place. In Apr 2014, the company authorized an additional share repurchase of up to $300 million of common stock, bringing the total authorization to $607 million (including $307 million authorized in January) for 2014.

Given the strong capital and liquidity positions, CIT Group has been meaningfully deploying its capital. Earlier this week, the company inked a deal to acquire Capital Direct Group, Inc., a provider of financing to small and mid-sized businesses. The deal will be completed by the end of third quarter. (Read more: CIT Group to Acquire Direct Capital)

Notably, as of Mar 31, 2014, CIT Group had cash and short-term investment securities of $8.6 billion, comprising $6.8 billion cash and $1.8 billion of short-term investments. Also, the company's Tier 1 capital ratio of 16.1% and total capital ratio of 16.8% stand well above the regulatory requirements.

Thus, we believe that CIT Group's plan to hike its quarterly dividend seems prudent. Moreover, the restructuring initiatives undertaken to streamline its businesses will further strengthen its balance sheet position.

CIT Group currently carries a Zacks Rank #3 (Hold). Some better-ranked financial organizations include Cielo SA (CIOXY), Euronet Worldwide Inc. EEFT and Ladder Capital Corp LADR. All these stocks sport a Zacks Rank #1 (Strong Buy).