Company Description: Community Trust Bank Corp. owns and operates Community Trust Bank, Inc. of Pikeville, KY, which provides commercial banking services in Kentucky and West Virginia; and a trust company.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
CTBI is trading at a premium to all four valuations above. The stock is trading at a 36.5% premium to its calculated fair value of $25.97. CTBI did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
CTBI earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. CTBI earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1988 and has increased its dividend payments for 34 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $85 is below the $500 target I look for in a stock that has increased dividends as long as CTBI has. The stock's current yield of 3.27% exceeds the 3.08% estimated 20-year average MMA rate.
Memberships and Peers: CTBI is, a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: IberiaBank Corp. (NASDAQ:IBKC) with a 2.0% yield, Hancock Holding Co. (NASDAQ:HBHC) with a 2.8% yield, and Capital City Bank Group Inc. (NASDAQ:CCBG) with a 0.6% yield.
Conclusion: CTBI did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks CTBI as a 3-Star Hold stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $25.18 before CTBI's NPV MMA Differential increased to the $500 minimum that I look for in a stock with 34 years of consecutive dividend increases. At that price the stock would yield 4.6%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 4.1%. This dividend growth rate is higher than the 0.5% used in this analysis, thus providing no margin of safety. CTBI has a risk rating of 1.5 which classifies it as a Low risk stock.
The company continues to disburse regular cash dividends, which reflect its steady balance sheet position. In addition, in June 2014 it paid a 10% stock dividend. When adjusted for the additional shares, the cash dividend fell to $0.29 per share.
CTBI has good financials with a low free cash flow payout of 28% and a reasonable debt to total capital of 41%. The stock is currently trading well above my calculated fair value price of $25.97 and its dividend growth rate is less than 1%, so for now I will wait for a more opportune time to add to my position.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in CTBI (2.7% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.