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Summary

  • The company's financials can only get stronger with the inability to return more capital to shareholders.
  • The stock is extremely undervalued at these levels.
  • The company has excellent near-term earnings growth potential.

The last time I wrote about Citigroup Inc (NYSE:C), I stated:

"Due the inexpensive fundamentals, improving financial metrics, and great earnings-growth prospects I'm going to actually pull the trigger on this particular name in the face of this market pullback." Since the time the article was published, the stock has dropped 0.38% versus the 4.2% gain the S&P 500 (NYSEARCA:SPY) posted. Citi is a global diversified financial services holding company whose businesses provide consumers, corporations, governments and institutions with a broad range of financial products and services which include consumer banking and credit, corporate and investment banking, securities brokerage and wealth management.

On January 16, 2014, the company reported fourth-quarter earnings of $0.82 per share, which missed the consensus of analysts' estimates by $017. In the past year, the company's stock is up 6.8%, excluding dividends (up 6.87% including dividends), and is losing to the S&P 500, which has gained 18.37% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying more shares of the company right now for the financial sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 11.09, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 8.27 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $5.71 per share and I'd consider the stock inexpensive until about $86. The 1-year PEG ratio (0.59), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is inexpensively priced based on a 1-year EPS growth rate of 18.68%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 18.68%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

04Dec13

52.62

13.25

9.71

5.42

81

0.86

15.40

02Feb14

47.43

10.85

8.25

5.75

86

0.73

14.91

29Mar14

47.24

11.09

8.27

5.71

86

0.59

18.68

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 0.08% with a payout ratio of 1% of trailing 12-month earnings while sporting return on assets, equity and investment values of 0.9%, 8.6% and 8.2%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 0.08% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

04Dec13

0.08

1

0.8

8.2

8.6

02Feb14

0.08

1

0.9

8.8

7.9

29Mar14

0.08

1

0.9

8.6

8.2

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock getting near oversold territory with a current value of 39.57. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line just crossed below the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($47.25), I'm looking at $48.32 to act as resistance and $46.50 to act as support for a risk/reward ratio which plays out to be -1.59% to 2.26%.

Recent News

  1. The Fed surprised the entire investor community with Citi's capital return plan results. Citi's was rejected not for the quantitative results of their financials, but the qualitative portion. The company has too many tentacles in the world's pie that it is apparently to tough to grasp.
  2. The company announced it is going to redeem $2 billion of trust preferred securities. This will allow the company to pay less on distributions in order to shore up the balance sheet even more.
  3. The company was downgraded by two firms immediately after the comprehensive capital analysis and review [CCAR] results were released. Bernstein and KBW dropped Citi from an "outperform" rating.

Conclusion

The company may not have been able to issue a higher dividend or buyback even more stock, but I got a dividend in the form of the 5.4% beating it took the next day after the CCAR results. The non-passing results were probably a blessing in disguise for me as I've wanted to plow more money into the stock. Fundamentally, the stock is inexpensive valuations on next year's earnings and growth potential while boasting high earnings growth expectations for next year. Financially, the balance sheet is already strong and can only get stronger with the inability to dish out capital to shareholders. Technically, it appears the stock has some downward momentum going right now but may be getting tired. Due to the excellent valuations, high earnings growth expectations, and near oversold technicals I will be pulling the trigger on this name around these prices.

Because I swapped out BioMed Realty Trust (NYSE:BMR) for Citi in my dividend portfolio it is only fair that I provide an update from the swap-out date. From November 19, 2013, Citi is down 6.58% while BioMed Realty Trust is up 3.6% and the S&P 500 is up 3.2%. Citi was performing well up until the emerging market meltdown in early January as seen in the chart below and I don't doubt Citi will make a comeback.

(click to enlarge)

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: I Received A 5.4% Dividend From Citi Whether Or Not They Were Allowed To Return Capital