Analyst Sees Genworth Reinstating Dividend and Stock Buyback

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Genworth Financial Inc. (NYSE: GNW) has not paid a dividend since 2008. That may soon be about to change if an analyst call from Monday turns out to be true. UBS raised the financial services firm up to Buy from Neutral, with a focus on the dividend and return of capital.

In the upgrade, UBS also raised the one-year price target up to $18 from $13. When we did our top analyst upgrades on Monday, we noted that Genworth is still turning around and that shares were up almost 100% from the lows of 2013. What really demands another look is that UBS is opining about Genworth’s prospects of paying a dividend again.

The firm sees Genworth having higher return on equity than its peers over the coming years. UBS is predicting that Genworth will reinstate a dividend on the common stock in 2014. Another bold prediction is that Genworth could start buying back its common stock in 2015.

When we first saw the research summary this morning, it felt a bit late because Genworth has already doubled from its lows of even 2013. The mortgage insurance woes are finally looking as though they are in the rear view mirror. Even the financial products sales may be seeing an improvement.

Does a 3.3% gain to $15.90 sound right for a late analyst call? It would seem excessive to us on the surface, but not if Genworth reinstates a dividend and a buyback plan. If you go back to the old $0.10 per share quarterly dividend, the yield would be just over 2.5% based upon the $15.90. Do not expect that rate to be reinstated, but we wanted to see what the former yield would have been under current conditions. Genworth is still not worth even $8 billion, so any common stock buyback could handily eat up its free float of stock.

We would warn readers that the stock hit a multi-year high of $16.01 on Monday, and the consensus analyst price target is only up at $16.23 now. That being said, Genworth also trades at only about 11-times expected 2014 if it can keep improving. For a turnaround of this magnitude, that still leaves potential upside for multiple expansion in what could actually bring a slight uptick in revenues.