Citigroup: Don't Listen To Wall Street

| About: Citigroup Inc. (C)

The major banking institutions in the U.S have experienced several twists and turns recently. The mortgage lawsuits and the emergence of a new rule requiring the banks to show how they would break down the assets in case of failure have made the highlights in most financial news sites. Many investors will be wondering what could happen to the U.S banking institutions in the face of International markets. Citigroup (NYSE:C) along with JPMorgan Chase (NYSE:JPM), HSBC Holdings (HBC) and Bank of America (NYSE:BAC) will be in the minds of many as the proposed new rules continue causing friction in the industry. Citi experienced mixed results in the last financial year, with some very impressive while the majority was not attractive at all.

An Analytical Overview of Citi

A lot of speculation has engulfed Citi recently albeit biased to one direction. Most stock pick opinions suggest that Citi is not a stock to buy, but rather short, or sell. Well I feel that this is a premature assessment despite the pending lawsuits. A lawsuit liability remains contingent until realized and should not be used as a basis to propose a short or sale action on the stock. However, a closer look at the fundamental analysis does support the suggested action by several news sites and so it is important to assess how material they are in relation to the recommended actions.

Citi has a forward annual dividend yield of 0.10%, which represents a dividend rate of $0.04 per share. In actual sense, this is too low compared with its set of direct competitors in the industry as listed in yahoo finance. For instance, JPMorgan has a forward annual dividend yield of 2.70% and a dividend rate of $1.20 for the same period. Bank of America seems to be the only one to score something in the same region as Citi since it recorded a forward annual dividend yield of 0.40% with a dividend rate of $0.04 per share. The market leader in this respect is HSBC, which recorded a forward annual yield of 6.40% and a dividend rate of $2.80 per share.

May 2011 Stock-Split Affecting Citi Dividend per Share

Looking back to May 2011, Citi had a 1:10 stock split just before the issue of dividends. The exercise of stock split is carried out to make the stock more affordable and this is what happened to Citi. However, this does not come at zero cost because the dividends issued are immensely affected. Technically this explains why Citi paid a dividend of only $0.04 per share and by calculating backwards, the result is that actually Citi paid the highest dividend of $4.00 per the original stock held. Note that the split did neither increase nor decrease the value of the stock held, but only made it more attractive to more investors. In this case those believing that Citi is a Sell or Short stock are obviously misguided.

Citi currently has a profit margin of 16.62% and an operating margin of 22.01% as compared with that of Bank of America, which has a profit margin of 1.81% and an operating margin of 13.37%. Despite yet again doing well to edge out Bank of America, Citi still lags behind the likes of JPMorgan's 21.16% profit margin and 36.24% operating margin. HSBC reinstates its leader's role by recording a whopping profit margin of 27.98% and an operating margin of 33.14%. A closer assessment of the profitability margins tells me that Citi is indeed within the industry mean and close to touching distance of the industry leader.

The Proposed New Rule Impact Assessed

Aside from the lawsuits on mortgage payments, Citi faces yet another huddle that a clique of speculators are using to create unnecessary panic in the financial services segment of the stock markets. The good news is that this challenge strikes across the board and is therefore not unique to Citi. The rule seeks to have the entire big multinationals break down the possible layout of assets as it would happen in case the institution goes under, which then will be distributed to the independent companies. I foresee a situation whereby the investors will be judging the performance of the resulting units independently and in respect to the unique factors affecting each unit. While this might seem like a one-way ticket allowing the investors to divest their funds from the banks, I feel that it should act as an opportunity.

Breaking down the multinational banks' assets to smaller unique independent units for instance, the real estate unit, the commercial banking unit, and investment banking unit gives the investors a chance to assess the specific areas they deem of the institution in a weighted manner. This means that you can almost accurately measure your potential risk of loss. Initially, you would have to assess the stock as one without applying any weights to assess risk. Therefore, this is not as bad as initially perceived, but rather something that will entice the wise investors to pick their stock unit by unit.

Justifiable Buy Recommendation

Citi is one of those stocks that carries many different opinions at the moment, and making the right decision might be difficult for some investors. I recommend buying Citigroup today.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.