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E*TRADE Financial (NASDAQ: ETFC ) was one of last week's biggest winners.
The stock moved 16% higher on encouraging payout news and a subsequent analyst upgrade.
Regulators are clearing the payment of a $100 million dividend by its banking subsidiary to the parent company, a move that E*TRADE expects to continue on a quarterly basis.
Investors shouldn't expect cash dividends, here, but the reallocation process will give the online discounter the ability to pay down its debt.
More importantly, the clearance itself is a strong indicator that regulators feel E*TRADE's banking arm is on the mend. E*TRADE was one of the many financials services companies to get slammed a few years ago during the global crisis, weighed down by its subprime mortgage business.
The reallocation approval swayed Goldman Sachs into upgrade the stock, boosting its price target from $13.50 to $19.
Shares of E*TRADE have nearly doubled since bottoming out late last year, but it's not as if the broker itself is on a growth tear. Analysts see revenue actually declining this year, and clocking in flat next year.
Larger rivals Charles Schwab (NYSE: SCHW ) and TD AMERITRADE (NASDAQ: AMTD ) are growing, but not by much. Analysts see single-digit percentage revenue growth at both companies this year and again in fiscal 2014.
It isn't easy being a discount broker these days. Customers have come to expect low commission schedules and access to commission-free ETF trading. Low interest rates have also robbed E*TRADE of one of its earlier marketing angles, where it would offer substantially higher returns on savings accounts and idle cash.
This doesn't mean things aren't going well. E*TRADE closed out its latest quarter with 4.6 million customer accounts, including 3 million brokerage accounts. Daily average revenue trades are up 8% to 150,000 over the past year. Total customer assets have grown from $193 million last summer to $220 million now.
E*TRADE may also be in a good place if interest rates continue to inch higher. Sure, that would freeze bond traders and possibly cool stock investors. However, E*TRADE would once again be able to benefit from the high interest rates that it can offer savers. BofI (NASDAQ: BOFI ) has seen its stock more than double over the past year as it rakes in the benefits of being a branchless bank. E*TRADE is in a similar position where it can pass on cost savings to customers in the form of more compelling rates than traditional banks.
E*TRADE's been a big winner last week and over the past year, but the good times don't have to end now.
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