Citigroup Positions for Global Growth in 1H18

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Part 10
Citigroup Positions for Global Growth in 1H18 PART 10 OF 10

How Citigroup Aims to Boost Return on Capital

Shareholder payouts

Bankers (IYF) reward shareholders with payouts in the form of repurchases and dividends. Overall, the industry has faced criticism of lower payouts, largely due to select banks’ stress-test failure in recent years. However, payouts have sharpened over the last few quarters due to strong operating cash flow and banks’ need to bump up their ROE (return on equity) by reducing their number of shares outstanding.

Citigroup (C) has been rewarding investors with dividends and repurchases as its profitability and margins have improved. The bank’s lending has been buoyant, and it has seen decent investment banking growth.

How Citigroup Aims to Boost Return on Capital

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Citigroup could target a payout through dividends and buybacks of ~$20 billion in 2018. The bank paid out $6.3 billion in 4Q17, in line with payouts in previous quarters. In 2017, Citigroup paid out $17.1 billion in dividends and repurchases, which was 9.2% of its total market capitalization. In 4Q17, Citigroup paid total dividends of $840 million, or $0.32 per share, and had an implied annualized dividend yield of 1.8%. Its peers’ dividend yields were as follows:

  • Bank of America (BAC): 1.6%
  • JPMorgan Chase (JPM): 2.1%
  • Wells Fargo (WFC): 2.8%

Buybacks amid declining prices

The recent stock market rout could give banks more opportunities for buybacks if operating cash flow generation remains consistent and improves with trading activity picking up in 1H18. Citigroup bought back 74 million shares for $5.5 billion in 4Q17, compared with $4.3 billion in 4Q16. The bank’s adjusted payout ratio rose to 187% in 4Q17, reflecting payouts above its operating cash flow generation in a bid to boost its return on equity. Citigroup’s return on total capital employed rose to 7.5% in 4Q17 from 7.1% in 4Q16. Payouts are expected to rise with higher repurchases and buying opportunities at lower prices.


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