Company Description: People's United Financial Inc. provides a full range of banking and financial service products to individuals, corporations and municipal customers in the U.S. Northeast.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value (see page 2 of the linked PDF for a detailed description):
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
PBCT is trading at a premium to all four valuations above. The stock is trading at a 29.5% premium to its calculated fair value of $11.02. PBCT did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics (see page 2 of the linked PDF for a detailed description):
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
PBCT earned one Star in this section for 3.) above. PBCT earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1993 and has increased its dividend payments for 16 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section (see page 2 of the linked PDF for a detailed description):
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $605 is below the $1,900 target I look for in a stock that has increased dividends as long as PBCT has. The stock's current yield of 4.55% exceeds the 3.22% estimated 20-year average MMA rate.
Memberships and Peers: PBCT is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index. The company's peer group includes: Bank of America Corporation (NYSE:BAC) with a 0.3% yield, Brookline Bancorp, Inc. (NASDAQ:BRKL) with a 3.7% yield and Westfield Financial Inc. (NASDAQ:WFD) with a 3.5% yield.
Conclusion: PBCT did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks PBCT as a 1-Star Very Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $9.25 before PBCT's NPV MMA Differential increased to the $1,900 minimum that I look for in a stock with 16 years of consecutive dividend increases. At that price the stock would yield 7.0%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,900 NPV MMA Differential, the calculated rate is 6.0%. This dividend growth rate is above the 1.6% used in this analysis, thus providing no margin of safety. PBCT has a risk rating of 2.00 which classifies it as a Medium risk stock.
PBCT has been fairly aggressive in its growth plan. Acquisitions included: Chittenden Corporation acquisition at the start of 2008, LSB Corp in 2010, Smithtown Bancorp in 2010 and Danvers Bancorp in 2011. The bank has more than doubled in size since 2007 and holds a top-ten deposit market share in five of the six states where it operates. These deals should raise its Northeast market share and boost its revenue and EPS growth rates long-term. PBCT will likely pursue additional deals to put its excess liquidity to work.
The company has good credit quality of in its loan portfolio and a history of profitability. It is currently trading at a 29.5% premium to my calculated fair value of $10.62. Free cash flow payout of 78% and debt to total capital of 48% are both above my desired maximum. I will wait for a opportune time before adding to my position.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in PBCT (2.5% of my Income Portfolio). See a list of all my dividend growth holdings here.
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