Dividend Analysis: Wilmington Trust

Wilmington Trust Corporation (WL) operates as the holding company for Wilmington Trust Company, which provides fiduciary, wealth management, investment advisory, financial planning, insurance, broker-dealer, lending, and deposit-taking services in the United States and internationally.

The company is a high yielding dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 26 consecutive years. From 1998 up until 2007, this dividend growth stock has delivered an annual average total return of 5.10 % to its shareholders.

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At the same time the company has managed to deliver a 5.20% average annual increase in its EPS since 1998.

The ROE has been decreasing from its high above 20% in the late 1990s to its most recent lows around 16% in 2007. If the ROE on WL falls below 14%, this could be a red flag for the company's ability to generate higher amount of earnings for each dollar in owners' equity.

Annual dividend payments have increased over the past 10 years by an average of 5.6% annually, which is lower than the growth in EPS. A 5.6% growth in dividends translates into the dividend payment doubling almost every 13 years. If we look at historical data, going as far back as 1990, WL has actually managed to double its dividend payment every eight and a half years on average.

If we invested $100,000 in WL on December 31, 1997, we would have bought 3418 shares (adjusted for a 2:1 stock split in June 2002). In January 1998 your quarterly dividend income would have equaled $615. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1560 by October 2007. For a period of 10 years, your quarterly dividend income has increased by 86 %. If you reinvested it though, your quarterly dividend income would have increased by 154%.

The dividend payout has remained close 50% for the majority of our study period with the exception of a brief spike above 60% in 2006. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that WL is attractively valued with its low price/earnings multiple of 12.70 and low DPR. The company also boasts an above average dividend yield at 4.30%.

Disclosure: I own shares of WL