XP's Strategic Capital Return: Dividend, Buybacks, and Share Retirements

In an era where financial sector players are increasingly scrutinized for their capital allocation discipline, XP Inc. (NASDAQ:XP) has emerged as a standout. Over the past year, the Brazilian fintech giant has unveiled a multifaceted capital return strategy-combining dividends, share repurchases, and share retirements-to reward shareholders while maintaining a robust balance sheet. This approach not only reflects confidence in its financial resilience but also signals a commitment to long-term value creation.

Dividend Policy: A Signal of Stability

XP's recent declaration of a US$0.18 per Class A common share dividend, totaling approximately R$500 million, underscores its intent to distribute profits to shareholders according to the announcement. This payout, coupled with a commitment to return over 50% of net income in 2025 and 2026 as reported, aligns with broader trends in the financial sector where firms are prioritizing shareholder returns amid low-interest-rate environments. The dividend yield of 3.48% as stated is particularly compelling in a market where many tech-driven fintechs offer minimal or no dividends, enhancing XP's appeal to income-focused investors.

Share Repurchase Program: Strategic Use of Liquidity

The authorization of a R$1.0 billion share repurchase program-valid until November 2026-further amplifies XP's capital return narrative according to the announcement. By leveraging existing cash reserves and adhering to SEC rules (Rule 10b-18 and 10b5-1) to minimize market volatility, the company aims to buy back undervalued shares. This program builds on a prior BRL1 billion buyback initiative announced in Q2 2025 as reported, which contributed to a 22% year-over-year increase in diluted EPS through share count reduction. Such disciplined repurchases not only boost earnings per share but also signal management's conviction in the stock's intrinsic value.

Share Retirements: Permanent Capital Reduction

Beyond repurchases, XP's retirement of 10.97 million shares (2.1% of total shares) in late 2025 according to the announcement represents a permanent reduction in equity capital. This action, which lowered the share count from 530.86 million to 519.89 million, directly enhances shareholder value by increasing ownership stakes in the company's growing earnings base. With a CET1 capital ratio of 18.5%-well above industry averages as reported-XP has the flexibility to sustain such actions without compromising regulatory buffers, a critical advantage in a sector prone to macroeconomic shocks.

Market Reaction and Long-Term Implications

The market has responded favorably to these initiatives. Following Q3 2025 earnings, where XP exceeded EPS estimates despite a modest revenue miss, the stock surged 4% in after-hours trading as reported. Analysts attribute this optimism to the company's 21.2% BIS ratio as reported and its strategic focus on high-margin segments like Corporate & Issuer Services, which grew 32% year-over-year as stated. These metrics, combined with a P/E ratio of 10.59 and a PEG ratio of 0.59 as reported, suggest the stock is undervalued relative to its growth trajectory.

However, XP's peer comparisons remain limited. While competitors like Nubank and Itaú have yet to disclose comparable capital return frameworks, XP's proactive approach-returning R$1.5 billion in dividends and buybacks since 2023-positions it as a leader in shareholder-centric governance as reported. The CEO's emphasis on AI-driven client solutions and wealth democratization as highlighted further reinforces confidence in the company's ability to sustain profitability while rewarding shareholders.

Conclusion: A Model for Sustainable Value Creation

XP's capital return strategy exemplifies a balance between immediate shareholder rewards and long-term prudence. By combining dividends, repurchases, and retirements, the company is not only enhancing short-term returns but also fortifying its capital structure for future growth. For investors, this approach offers a compelling case: a fintech with the scalability of a tech firm and the disciplined capital management of a traditional bank. As XP continues to execute its plan, the market will likely reward its strategic clarity with sustained confidence-and perhaps, a re-rating of its valuation.