First Niagara Bank has branches across upstate New York, Connecticut, Pennsylvania, and Massachusetts. The bank has some really good signs, and of course some indicators that investors should proceed with caution. Overall, I think that it does have the potential to grow and could add value to an investors portfolio.
Fist Niagara Financial Group (FNFG) has been both acquiring and selling specialty finance companies, insurance brokers, and bank and thrift companies. This trend could help the bank grow into larger markets, which would then allow the bank access to new customers. New bank customers means new deposits, which would allow the bank to make loans from those deposits and collect the spread between their loan revenue and deposit interest. FNFG also has a 3.6% dividends, and has been paying quarterly dividends since 1998. This dividend was increasing until 2012, until it was cut from 16 cents a share to 8 cents a share.
Although the dividend was cut, 3.6% is nothing to scoff at. We can now look at some other issues as well as some benefits the company may present to an investor. It’s price to free cash flow is 4.8 and its price to book value is 0.6. This shows that FNFG can be bought at a discount to its book value and for less than 5 times its free cash flow. However, its last quarter over quarter cash flow from operations did decrease from $184 million to $154 million, a 16% decrease. The company was able to increase overall cash from $424 million to $503 million, a 19% increase, largely due to its net increase in deposits.
Using Guru Focus’ interactive charts, we can see that free cash flow per share has increased dramatically, but that FNFG’s cash flow for dividends is currently at -$142 million. Could FNFG continue to support its dividend or will it have to cut it again?
I think FNFG is trying to see how well its acquisitions will do before raising its dividends. Above you will see that when we use the FCF instead of EPS in Guru’s DCF calculator, we get a fair value of $27.29 and a margin of safety of 68%. If FNFG can continue to increase its FCF and cash flow for dividends, this could be a very sound investment in an investor’s portfolio, especially since it is trading at .6 of its book value.