Tompkins Financial: Extremely Under The Radar Dividend Champion

Jul.16.12 | About: Tompkins Financial (TMP)

Though I am currently a macro based futures and options trader, I have been compiling a database of excellent long-term dividend holds, that I hope to begin accumulating within the next couple of years. Much of my research has its origins from David Fish's phenomenal dividend list (many thanks to Mr. Fish for this service).

On that list, a new addition is Tompkins Financial (TMP), which just recently had its 25th consecutive year of a dividend increase. The company has a 5 year annual average increase of 5.7%, and last year's increase was nearly 6%. The last four quarters have produced total free cash flow (OCF-CAPEX) of approximately $60 million.

With $60 million in free cash flow, and $17.6 million in annual dividend payments to shareholders, Tompkins Financial has an incredibly low payout ratio of 29%, yet the stock yields an excellent 3.7%.

Business

Tompkins is a regional banking branch in Ithaca, New York. They fully own and operate The Bank of Castile, Mahopac National Bank, and AM&M Financial Services.

Tompkins Financial's main business are as follows:

  • Commercial and Consumer Banking
  • Leasing
  • Trust and Investment Management
  • Financial Planning
  • Credit Cards
  • Insurance
  • Brokerage Services

I have written in the past about the durability of Tomkins' business. The fact that TMP has been established in its region for 175 years is a priceless intangible. I've thought about it in the following manner:

If you've utilized the diverse portfolio of products that the company offers, whether it be insurance, wealth management, checking/savings accounts, consumer/commercial loans, tax and accounting help etc., it's highly unlikely you're going to move your books to another bank, especially a TBTF bank. People in that region (I live very close) have a strong sense of community, and after speaking to two customers of the Bank of Mahopac, it's clear that people love the accessibility of the company. The company actually has you come in and work with them regarding payment difficulties; this is a huge reason for their ultra-low 1.19% of non-performing assets relative to total assets - a figure that is still declining.

TMP recently acquired VIST financial in an all-stock deal, which should be finalized this quarter. VIST operates in Southeastern Pennsylvania, an area that Tompkins believes has "similar demographics" to their own region. VIST was acquired at 7/10th's of book value, will add $1.4 billion in assets to TMP's balance sheet, and is expected to grow TMP's earnings in the first year. It's an exciting expansionary move, and grows TMP's quality asset base.

Estimates call for $3.42 in 2013 earnings, thanks in large part to the accretive benefit from the VIST acquisition. That gives TMP a valuation of 11.3 times earnings. Based on current free cash flows, TMP trades at a mere 7.8 times FCF. It's extremely difficult to find healthy, growing dividend stocks trading under 10 times FCF.

EPS has been growing at a rate of 6% a year since 2007, and grew right through the recession, an astounding achievement, to say the least.

Management is very shareholder oriented, and expects to consistently increase the dividend payout.

Conclusions

Tompkins is one of those "boring," stocks that is actually exciting from the viewpoint of the dividend or dividend growth investor. Given TMP's exceptionally low valuation and security, investors should earn substantial returns on investment over the next decade. Now would also be a great time to initiate a dividend reinvestment plan, in order to take advantage of the valuation and further increase compounded returns.

*All data sourced from TMP's 10-Q, 10-K, and Yahoo Finance unless otherwise noted.

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