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Lately I have been doing a lot of reading of articles here on Seeking Alpha about dividend growth investing. One thing I have noticed is the reluctance of many investors to buy stocks in several sectors, namely financial stocks and technology stocks. The often-cited reason for not holding technology stocks is that with the way technology is constantly changing, you have no idea which will be the most successful companies in 20 years, instead of something like consumer goods stocks such as Coco-Cola (NYSE:KO) and Procter & Gamble (NYSE:PG) which will surely be around at that time. Another is financial stocks, particularly bank stocks, due to the possibility of a repeat of the 2008-2009 financial melt-down. Companies that had been solid dividend payers slashed their payouts during the crisis and due to this, a lot of dividend growth investors think no financial stocks should be included in your portfolio.

The problem I have with that thesis is that the examples used to support it are usually Bank of America (NYSE:BAC), J.P. Morgan Chase (NYSE:JPM) and other such large cap institutions. There are many other smaller bank stocks out there that did not engage in such risky lending practices as the big boys of the banking industry and actually continued to raise their dividend payouts through the crisis. These stocks are the regional banks.

For this article, I started with David Fish's Dividend Champions list which includes five such regional bank stocks that have all been raising their dividends every year for at least the past 25 years. They are Commerce Bancshares (NASDAQ:CBSH), Community Trust Bancorp (NASDAQ:CTBI), Eagle Financial Services (OTCQB:EFSI), 1ST Source Corporation (NASDAQ:SRCE), and Tompkins Financial Corporation (NYSEMKT:TMP). I eliminated Eagle Financial Services due to the fact that it trades over the counter only. The purpose of this article will be to analyze these stocks with an emphasis on which one(s) offer the best buying opportunity going forward based on a fundamental analysis of each with an emphasis on the ability to keep raising those dividends.

Commerce Bancshares, Inc.

Commerce Bancshares is a southwest regional bank founded in 1865 with its headquarters located in Kansas City, Missouri. It currently has 204 branches and 403 ATM locations in Missouri, Kansas, Illinois, Oklahoma, and Colorado. From the company's website, Commerce "is a registered bank holding company offering a diversified line of financial services, including business and personal banking, wealth management and estate planning and investments through its affiliated companies, and also has operating subsidiaries involved in mortgage banking, credit related insurance, venture capital and real estate activities." With a market cap of 3.60 billion, it is by far the largest of the five regional banks.

Market Cap

3.94 Billion

Current Price

43.48

Book Value

23.94

Price-to-Book Ratio

1.80

Trailing P/E

15.15

Forward P/E

14.89

PEG

2.02

EPS

2.87

Dividend

.90

Payout Ratio

82%

Yield

2.10%

5 Year Dividend Growth Rate

3.5%

No. Years Increased

44

Looking at some basic statistics for the company we see that it is currently trading a little above 1 ¾ times book value and a PEG of 2.02. The company currently pays out 82% of its earnings in the form of a dividend which at this price yields 2.10%. Commerce Bancshares has been raising the dividend for 44 years now. With such a high payout ratio, the stock does not provide as much of margin of safety as the other four banks.

Community Trust Bancorp

Community Trust is a southeast regional bank founded in 1903 with its headquarters located in Pikeville, Kentucky. It currently has 80 locations in Kentucky, West Virginia, and Tennessee. It offers both personal and commercial banking services and also offers a full brokerage service.

Market Cap

549.27 Million

Current Price

35.35

Book Value

26.17

Price-to-Book Ratio

1.34

Trailing P/E

12.27

Forward P/E

11.86

PEG

2.37

EPS

2.88

Dividend

1.26

Payout Ratio

43%

Yield

3.50%

5 Year Dividend Growth Rate

2.2%

No. Years Increased

32

Looking at some fundamentals of Community Trust, we see it is currently trading for more than two times its growth rate which is a little high. I prefer to only buy stocks with PEG ratios below two at a maximum. However it is does have some positives, it currently is trading at a slight premium to book value with a ratio of 1.34. It also sports a 3.50% yield on a 43% payout ratio.

1st Source Corporation

1st Source Corporation is a Midwest regional bank that was founded in 1863 and their headquarters are located in South Bend, Indiana. The company operates as a holding company for 1st Source Bank which has 75 banking locations in Indiana and Michigan. In addition, it also has 22 specialty finance group locations in the United States. 1st Source offers personal and commercial banking services as well as trust and investment services, and insurance products, including property, casualty, and health and life insurance for both individuals and businesses.

Market Cap

589.90 Million

Current Price

24.21

Book Value

23.33

Price-to-Book Ratio

1.03

Trailing P/E

11.87

Forward P/E

-

PEG

-

EPS

2.04

Dividend

.68

Payout Ratio

33%

Yield

2.80%

5 Year Dividend Growth Rate

3.3%

No. Years Increased

25

With a small payout ratio of only 33%, 1st Source has plenty of room to continue to grow its dividend and also provides a margin of safety should earnings decrease in the future.

Tompkins Financial Corporation

Tomkins Financial Corporation is a northeast regional bank that was founded in 1836 and their headquarters are located in Ithaca, New York. Tompkins operates 66 banking offices in New York and Pennsylvania. They offer both personal and commercial banking, as well as brokerage services and insurance products.

Market Cap

597.57 Million

Current Price

41.34

Book Value

30.96

Price-to-Book Ratio

1.33

Trailing P/E

16.23

Forward P/E

12.12

PEG

1.53

EPS

2.55

Dividend

1.52

Payout Ratio

58%

Yield

3.60%

5 Year Dividend Growth Rate

5.0%

No. Years Increased

26

Tompkins looks attractive at these prices with a PEG below two and a Price-to-Book ratio of only 1.33. With a 3.60& yield at today's price and a 5.0% five year dividend growth rate, Tompkins offers you both a high starting yield and solid growth. The company has been increasing their dividend payments for 26 years now.

Conclusion

Based on current valuations and dividend statistics, I believe Tompkins to be the best buy today. It offers the highest starting yield and five year dividend growth rate among the four banks. It also is trading at less than two times its long-term growth rate and 1.33 times its book value.

I hope you use this article as a starting point for further research into regional banks. All four I believe are worthy of more research and may be good pickups for a dividend growth portfolio on a pullback. Unlike most of their large-cap counterparts, they offer excellent dividend growth histories and are more conservative in their business model which is why I believe they should be included in the discussion of dividend growth investing.

All statistics taken from Yahoo Finance, Seeking Alpha, and David Fish's CCC document. All stock prices current as of the market's close, May 24, 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: 4 Regional Banks With Long Dividend Growth Histories