M&T Bank a Bargain at Current Levels: Low P/E, Attractive Dividend Yield

M&T Bank Corporation (MTB) operates as the holding company for M&T Bank and M&T Bank, National Association, which provide commercial and retail banking services to individuals, corporations and other businesses, and institutions.

It is a dividend aristocrat as well as a component of the S&P 500 index. Over the past 10 years, the company has delivered an average total return of 10.10% annually to its shareholders. The stock price has fallen in 2007 along with other financial issues. If the fundamental financial position does not deteriorate significantly, the company should be able to weather the crisis.

The company has managed to deliver an impressive 10.56% average annual increase in its EPS.

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The ROE has been in a 10%-15% range for our study period, which is also an impressive number.

Annual dividend payments have increased over the past 10 years by an average of 24.21% annually, which is above the growth in EPS. A 24% growth in dividends translates into the dividend payment doubling every three years. If we look at historical data, going as far back as 1991, MTB has actually managed to double its dividend payments every four years on average.

If we invested $100,000 in MTB on December 31, 1997 we would have bought 2151 shares. Your quarterly dividend income would have been $172.08 in February 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1732.50 by December 2007 and you would be expecting to collect $1747.20 in dividend income in February 2008. For a period of 10 years, your quarterly dividend income has increased by an impressive 775 %. If you reinvested it though, your quarterly dividend income would have increased by an even more impressive 915%.

The dividend payout has been in a steady uptrend over the past 10 years, rising from less than 15% in 1998 to over 43% in 2007. Based off this, I believe that future dividend growth might be lower than the 24% achieved in prior years as the payout crosses 50%, and that it would be limited to the ability of the company to increase its EPS.

I believe that the company is a bargain at current levels with its low P/E at 13, attractive dividend yield of 3.50% and payout of less than 50%.

Comments

[clear1:]

Nice analysis...for the same reasons (and a better valuation), take a look at US Bancorp (USB). Most importantly, virtually no subprime exposure and the highest returns on assets among the regionals.

2008 Mar 07 10:52 AM

[E Nuff Sed:]

Good analysis. Though current yeild is not high @ 3.5% MTB has been active at buying back stock. It is 25% owned by Irish bank AIB, 21% by insiders and 6% by Berkshire Hathaway. I agree it is great value at this price and the current turmoil in the financial market may give it opportunity to grow further.

2008 Mar 07 10:50 PM

[weiwentg:]

I was going to note the same thing as Pravchaw. MTB is partly owned by Allied Irish. Both are good, conservative banks. although MTB has made Alt-A loans, it also didn't securitize them, and is holding the loans on its balance sheet. net charge offs have historically been very low. Morningstar gives MTB excellent marks for stewardship (and also likes AIB's stewardship).

2008 Mar 08 05:41 PM

[stonebluff:]

This writer's blogs are interesting, though I doubt the wisdom of automatic investing of dividends. If you've owned a stock a while you'll have a feel for when it's cheap. Why does Pravchaw think M&T's (or any bank's) buybacks at multiples of book and high multiples of tangible book are good for M&T or shareholders? They weaken the bank. They be good for the exshareholders who bail ou into buyback programs, but I cannot see how I, a continuing shareholder am benefited.

2008 Apr 07 12:14 PM