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Summary

  • The dividend ex-date is May 1.
  • The stock is inexpensive on fundamental valuations at $48 per share.
  • The stock seems to be consolidating at $48.

The last time I wrote about Citigroup Inc. (NYSE:C), I stated, "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." After writing the article, the stock popped 1.93% versus the 1.11% 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 April 14, 2014, the company reported first-quarter earnings of $1.30 per share, which beat the consensus of analysts' estimates by fifteen cents. In the past year, the company's stock is up 2.64% excluding dividends (up 2.71% including dividends), and is losing to the S&P 500, which has gained 18.71% 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 11.36, 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 8.72 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $5.52 per share, and I'd consider the stock inexpensive until about $83. The 1-year PEG ratio (0.7), 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 16.25%. The company has great near-term future earnings growth potential, with a projected EPS growth rate of 16.25%. In addition, the company has great long-term future earnings growth potential, with a projected EPS growth rate of 11.12%. Below is a comparison table of the fundamental metrics for the company 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

30Apr14

48.16

11.36

8.72

5.52

83

0.70

16.25

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%, 8.5% 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

30Apr14

0.08

1

0.9

8.5

8.2

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock in middle-ground territory, with a current value of 51.6 and with no real trajectory. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line, with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($48.16), I'm looking at $48.46 to act as resistance and the 20-day simple moving average (currently $47.56) to act as support for a risk/reward ratio which plays out to be -1.25% to 0.62%.

Recent News

  1. The Wall Street Journal has reported that Citi is ready to negotiate with the Department of Justice over how much mortgage backed securities it'll have to part with for its part in the housing bubble. Citi didn't have as big a hand in the housing bubble as did JPMorgan (NYSE:JPM) and Bank of America (NYSE:BAC), so Citi's pain should be less than the $13 billion that JPMorgan coughed up.
  2. The company declared a quarter dividend of $0.01 per share. The ex-date for the dividend is May1, with a pay date of 23rd May, '14 and forward yield of 0.08%.
  3. Shareholders approved CEO Mike Corbat's pay package of $17.6 million at the annual meeting held a week ago. If you ask me, that's a bit too much for someone that hasn't added any value to the stock yet.

Conclusion

I don't know what's worse, not having your capital plan approved from the get-go, as what happened to Citi, or have it approved and then you find out you made some errors, a-la BofA. I would have to think it's the latter, although the former isn't a great situation either. Fundamentally, the company is indeed inexpensively priced, based on future earnings estimates and based on next year's earnings growth potential. Financially, the dividend is safe and secure, albeit miniscule. On a technical basis, I believe the stock is consolidating in this region of $48. Due to the technical consolidation, low dividend yield and nasty regulatory environment for the financial sector I will not be pulling the trigger here right now. But I do believe the time to purchase some more shares is approaching.

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 5.42%, while BioMed Realty Trust is up 8.14% and the S&P 500 is up 4.84%. Citi was performing well up until the emerging market meltdown in early January, as seen in the chart below, and I don't doubt that it 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!

Disclosure: I am long C, JPM, BAC, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Citi Is Consolidating At $48, But May Push Lower Shortly