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Discover Financial Returns More Capital, Passes Stress Test

Discover Financial Services Inc. DFS announced its intention to increase quarterly dividend by 16.7% to 35 cents per share, beginning with the third quarter. It also plans to repurchase up to $2.23 billion of common shares during the Comprehensive Capital Analysis and Review (CCAR) approval period from the third quarter of 2017 to the second quarter of 2018.
The announcement came on the back of “no-objection” received by the company from the Board of Governors of the Federal Reserve System to its capital plan submitted recently. The plan submission was part of the 2017 CCAR.
Notably, CCAR is a regulatory framework of the Federal Reserve which assesses, regulates and supervises large banks and financial institutions. These stress tests were introduced after the 2008 financial crisis, which led to a downfall of many big financial institutions to prevent the recurrence of similar situation. These tests which scan the capital position of big financial institutions have been carried on every year since 2009. 
The passage of the capital plan by Discover Financial signifies that the company possesses adequate capital and that its capital structure is stable under various stress-test scenarios. It also implies that planned capital distributions, such as dividends and share repurchases, are viable and acceptable in relation to the regulatory body’s minimum capital requirements.
The news, however, failed to cheer the investors as the stock declined 0.30% in the last trading session. Also, in past one year, the stock has increased 14.7% compared with the Zacks categorized Financial - Consumer Loans industry’s gain of 25%.
Another company in the same space, American Express Co. AXP, successfully navigated the same stress test following which it announced plans to increase quarterly dividend by 9.4% to 35 cents per share, beginning with the third quarter. It also intends to repurchase up to $4.4 billion of common shares from the third quarter of 2017 to the second quarter of 2018.  
Capital One Financial Corporation COF, however, received conditional consent on resubmission of its capital plan, after addressing certain weaknesses in its capital planning process. It expects to repurchase up to $1.85 billion of shares of common stock through the second quarter of 2018 and will maintain its current quarterly dividend of 40 cents per share.
Discover Financial carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Alliance Data Systems Corp. ADS with a Zacks Rank #2 (Buy). You can see the _1link"> complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Alliance Data beat estimates in two of the last four quarters, with an average positive surprise of 2.15%.

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Discover Financial Services (DFS): Free Stock Analysis Report
Capital One Financial Corporation (COF): Free Stock Analysis Report
American Express Company (AXP): Free Stock Analysis Report
Alliance Data Systems Corporation (ADS): Free Stock Analysis Report
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