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Instant Analysis: AIG Hikes Dividend and Share Buybacks

By Eric Volkman - Feb 18, 2016 at 5:28PM

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The company is boosting its payout by 14%, and adding $5 billion to its current stock repurchase authorization. Here's why, and what it means to AIG's investment thesis.

What happened?
American International Group (AIG -1.13%) has made several shareholder-pleasing moves of late. Most recently, the company declared a hefty 14% hike in its quarterly dividend, to $0.32 per share.

That's in addition to the $5 billion increase in its share buyback authorization, which was announced concurrently. Combined with the remaining amount of the insurer's previous repurchase program, the total authorization now stands at roughly $5.8 billion.

Both moves are part of a broader initiative, announced last month, to return $25 billion of capital to AIG shareholders.

The new dividend is to be paid on March 28 to shareholders of record as of March 14. At AIG's current share price, it yields 2.4%. This is slightly higher than the average yield of dividend-paying stocks in the S&P 500.

Does it matter?
It's hard to escape the feeling that the $25 billion capital return plan was announced to help keep the activists at bay. AIG has been under fire for months from not one, but two, noted corporate gadflies -- John Paulson of Paulson & Co., and Icahn Enterprises' (IEP -0.18%) Carl Icahn.

Both have a number of grievances about AIG's strategic direction (mainly having to do with its size, and the perceived burden of its status as a federally designated "systemically important financial institution"). Last week, both men were given one board seat apiece to fill, so the guiding lights of Paulson & Co. and Icahn Enterprises will now have a more direct influence on the company.

Additionally, Paulson and Icahn effectively agreed with AIG to set aside their criticisms of the company until the summer, and not to wage a proxy fight for control of it this year. The enhanced dividend and the new $5 billion in share buybacks should help maintain that peace.

Regardless of what happens to the company in light of Paulson and Icahn's increased involvement, the two moves should have an impact on AIG's stock, given their large size. AIG is an interesting investment proposition just now, and this pair of announcements will doubtless raise interest in the stock.

Eric Volkman has no position in any stocks mentioned. Nor does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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