First Commonwealth Financial: Paying You to Wait

| About: First Commonwealth (FCF)

With shares trading at five-year lows and a dividend yield exceeding 6%, now may be a good time to consider shares of small-cap regional bank holding company First Commonwealth Financial (NYSE:FCF). The bank has assets of about $6 billion and operates in 15 counties in western and central Pennsylvania with a total of 110 branch locations -- offering retail banking, loans, investment advisory services, insurance products, and trust services to individuals and small businesses.

First Commonwealth trades at a forward price-earnings ratio of about 17.7, based on the recently lowered consensus estimate of analysts for earnings of $0.63 per share for the 2007 fiscal year. The company sports a dividend yield of 6.1% at $0.68 per share, based on Wednesday's closing price of $11.17, giving it a market cap of about $826 million. Additionally, the company is valued below its peers with a price-book ratio of just 1.45.

As mentioned above, analysts have recently downgraded shares after the company reported bland results on April 19. Analysts believe that a prolonged inverted yield curve and slow growth markets in western Pennsylvania are hampering results at First Commonwealth. However, optimism was expressed for the company's future ability to transition into higher margin commercial real estate lending as it restructures its balance sheet and lending portfolio. Finally, analysts expect the company to experience additional costs as it looks to transform itself into a complete financial services organization.

With its consistent history of both paying and increasing dividends to shareholders, First Commonwealth is part of the Mergent Dividend Achievers 50 Index. To become eligible for inclusion in the Dividend Achievers Index, a stock must be incorporated in the USA, trade on one of the three major markets, and have increased its annual regular dividend payments for the last 10 or more consecutive years.

With the company currently trading at five-year lows and sporting a dividend yield over 6%, now may be a good time for income investors to consider a position in First Commonwealth. At this attractive entry point, the company pays patient investors to wait for either improved operating results or a potential takeover to add some stock price appreciation to the nice dividend yield.

FCF 1-yr chart


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