Dividend Champions To Buy, Sell, And Hold, Part 1

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Includes: CBSH, CPKF, CTBI, EFSI, FMCB, PBCT, SRCE, THFF, TMP, UBSI, UMBF, WABC
by: Stan Stafford

Summary

Dividend Champions are a great list of stocks to study for investment options.

In this series of article, I will review stocks from specific industries to determine which stocks are buys, which stocks are sells, and which stocks should be held.

In the first part of this series, I will be reviewing 12 stocks from the banking industry.

Overview

In this series of articles, I will be reviewing Dividend Champions from a specific industry and selecting stocks as long term buys, as current holds, and as stocks to currently avoid based on variety of financial and valuation metrics. I will also be looking at recent news and future outlooks in making my determinations.

More information regarding the Dividend Champions, Contenders, and Challengers lists that Dave Fish maintains can be found here. For part 1 of this series, I will be looking at Dividend Champions from the Banking industry.

These stocks include:

  • 1st Source (SRCE)
  • Chesapeake Financial (OTCQB:CPKF)
  • Commerce Bancshares (CBSH)
  • Community Trust (CTBI)
  • Eagle Financial Services (OTCQX:EFSI)
  • Farmers & Merchants (OTCQX:FMCB)
  • First Financial (THFF)
  • People's United Bancorp (PBCT)
  • Tompkins Financial (TMP)
  • UMB Financial (UMBF)
  • United Bankshares (UBSI)
  • Westamerica Bancorp (WABC)

Financial Metrics

Revenue Growth

Over the past five years, United Bankshares has seen the best revenue growth (64.80%), while Westamerica Bancorp and First Financial were the only two stocks to have seen a decline in revenue during this time.

Earnings Growth

In terms of earnings growth, it is Tompkins Financial that has seen the highest growth over the past five years (67.87%), while Westamerica Bancorp and Chesapeake Financial were the two stocks to have seen declines in earnings during this time period.

Return On Assets

Community Trust currently has the highest ROA with a value of 1.18%, while People's United currently has the lowest with a value of 0.71%.

Return on Equity

Looking at ROE, People's United once again has the lowest current value at 5.79%, but it is Commerce Bancshares that currently has the highest value at 12.08%.

Return on Invested Capital

Commerce Bancshares also has the highest ROIC value at 10.93% compared to People's United once again having the lowest value at just 3.15%.

Dividend Yield

The majority of the Dividend Champion stocks included in the banking industry have yields between 1.25% and 3.55%. The highest yielding stock currently is People's United with a yield of 3.81%. The lowest yielding stock right now is UMB Financial with a yield of just 1.37%.

Dividend Growth

The dividend growth in this industry hasn't been very impressive with Chesapeake Financial having the best growth over the past five years at 25%, while First Financial has seen the lowest growth at just 4.17% during this time.

  • CPKF - 30.00%
  • SRCE - 22.94%
  • CBSH - 21.55%
  • UMB - 18.60%
  • TMP - 18.42%
  • EFSI - 15.79%
  • CTBI - 15.24%
  • FMCB - 8.87%
  • PBCT - 7.81%
  • UBSI - 6.45%
  • WABC - 5.41%
  • THFF - 4.17%

Valuation Metrics

Trailing PE Ratio

Most of the stocks in this industry appear fairly valued with PE ratios under 20.00x; however, there are a few stocks that appear slightly overvalued. Westamerica has the highest PE ratio with a value of 25.20x, while Eagle Financial Services has the lowest PE ratio with a value of 13.88x.

Price to Book Value

When looking at valuation based on price to book value, Westamerica remains the most overvalued with a 2.61x price to book value compared to People's United, which has the most attractive value at 1.13x.

Total Scores

In the chart below, I have totaled the overall scores for each stock to determine which stocks are the most attractive based on overall fundamentals and current valuation. The stocks are sorted in the order of overall top scores.


Revenue Growth Earnings Growth ROA ROE ROIC Yield Dividend Growth PE Ratio Price To Book Total Score
FMCB 10 10 7 10 11 6 5 10 6 75
CPKF 9 2 6 8 9 2 12 11 9 68
CBSH 6 7 11 12 12 4 10 4 2 68
EFSI 4 4 5 5 6 10 7 12 11 64
TMP 11 12 4 11 3 7 8 5 3 64
CTBI 3 3 12 7 7 9 6 8 7 62
UBSI 12 8 3 2 2 11 3 7 10 58
SRCE 7 11 8 6 4 3 11 3 4 57
PBCT 5 9 1 1 1 12 4 6 12 51
THFF 2 5 10 3 5 5 1 9 8 48
UMBF 8 6 2 4 8 1 9 2 5 45
WABC 1 1 9 9 10 8 2 1 1 42

Looking at just the scores, it is easy to assume that perhaps Farmers & Merchants, Chesapeake Financial, Eagle Financial, Tompkins Financial, and Community Trust Bancorp are buys since they have the highest scores. Perhaps the six stocks with scores between 62 and 51 would be holds. This would leave First Financial, UMB Financial and Westamerica Bancorp as sells since they have the lowest scores.

Looking at financial metrics and current valuations are a good place to start, there are other things to consider when determining whether or not a stock should be considered as a current buy. This includes actual stock price appreciation, recent news and future outlooks of the individual stocks.

Price Appreciation

Looking at the charts below, you can see that although 1st Source was in the middle of the pack in overall scores (8th out of 12), it has actually seen the highest stock price appreciation and total returns over the past five years.

Although 1st Source has performed well, it doesn't mean that trend will continue, but it does give an indicator of the potential the stock has. In terms of a short term period, you can see that Tompkins Financial and United Bankshares have seen the worst declines so far this year, with Chesapeake Financial seeing a significant increase compared to the other stocks.

Comparing long term trends with short term trends of each stock can help decipher whether recent price moves are a strong indicator of future gains/losses or if it presents a great time to either buy (at an undervalued weight) or sell (take gains). Adding in recent news including quarterly earnings reports can paint a brighter picture of the overall strength or weakness of individual stocks.

Recent News and Future Outlook

1st Source

1st Source had a strong recent quarter with an 8.4% increase in revenue and an increase in earnings per share from $0.56 to $0.64 compared to the same period last year. With significant increases in loans and deposits, 1st Source appears well positioned to keep being a strong performer in the long run. It's most recent dividend increase was 5.6%.

Chesapeake Financial

For its last quarter, the company saw an increase in operating income from 2.26M to 2.35M and an increase in earnings per share from $0.47 to $0.49 compared to the same period last year. It's most recent dividend increase was 4%.

Commerce Bancshares

For its last quarter, Commerce Bancshares had a 6.1% increase in revenue and an increase in earnings per share from $0.70 to $0.75 compared to the same period last year. With increased interest income from its loan portfolio as well as increases in fees associated with bank card, trust and deposit fees, I think commerce bancshares will continue to perform well as it has shown an ability to keep its expenses down. It's most recent dividend increase was 5.1%.

Community Trust Bancorp

Community Trust missed its most recent quarterly revenue and earnings estimates as it saw a decline in earnings per share from $0.66 to $0.65 and a modest increase of 3.8% in revenue compared to the same period last year. In addition, it also saw declines in return on assets, return on equity, and its efficiency ratio compared to the same period last year. Its most recent dividend increase was 3.1%.

Eagle Financial Services

For its last quarter, Eagle Financial Services saw a 3.5% increase in revenue and an increase in earnings per share from $0.46 to $0.58 compared to the same period last year. With a strong commitment to growing its balance sheet while keeping its loan and deposit growth sustained, Eagle Financial should continue to be a strong investment option. Its most recent dividend increase was 10%.

Farmers & Merchants

For its last quarter, Farmers & Merchants had earnings per share of $10.12 compared to $9.25 for the same period last year and revenue of $26.50M compared to $23.40M last year. Total assets were up 12% compared to the same period last year and total deposits increased by over 14%. The company has a strong credit quality and maintains a tier 1 capital ratio. Its most recent dividend increase was 3.1%.

First Financial

First Financial had a difficult period for its last quarter, missing both revenue and earnings estimates. The company did see its average total loans and average total deposits grow while its nonperforming loans decreased by 17.5%. Its most recent dividend increase was 2%.

People's United

For its most recent quarter, People's United Financial saw a 12.6% increase in revenue and an increase in earnings per share from $0.23 to $0.24 compared to the same period last year. The quarter was bolstered by the acquisition of Suffolk and the company recently announced an acquisition of LEAF Commercial Capital. I believe that People's United's growing diversity in terms of its business portfolio will continue to be a strong growth driver moving forward. Its most recent dividend increase was 1.5%.

Tompkins Financial

Tompkins had a strong recent quarter with a 9.3% increase in revenue and an increase in earnings per share from $0.96 to $1.11 compared to the same period last year. With strong growth in both deposits and loans as well as improving margins, Tompkins appears well positioned to see considerable future returns. Its most recent dividend increase was 2.3%.

UMB Financial

For its most recent quarter, the company saw a 10.6% increase in revenue and an increase in earnings per share from $0.74 to $0.90 compared to the same period last year. Average loan balances also increased by 9.5%. UMB has a diverse portfolio and continues to make necessary adjustments to ensure continued growth (whether through removing underperforming branches or enhancing its online and mobile banking options). Its most recent dividend increase was 4.1%.

United Bankshares

For its most recent quarter, the company saw a decline in earnings per share from $0.44 to $0.37 (mostly due to expenses from its merger with Cardinal Financial Corporation) and a 38.6% increase in revenue compared to the same period last year. With a strong balance sheet and fair valuation United Bancshares remains a solid investment option. Its most recent dividend increase was 3.1%.

Westamerica Bancorp

For its most recent quarter, Westamerica saw an increase in earnings per share from $0.57 to $0.60 compared to the same period last year, but a decline in revenue of 0.2%. This has been a trend for Westamerica as it has seen its revenue decline nine consecutive quarters. The company also saw its net interest margin and efficiency ratio decrease compared to the same period last year. Its most recent dividend increase was 2.6%.

Conclusion

I feel that most of the Dividend Champion stocks in this industry are suitable long term investment options for dividend investors. The ones I currently like the best right now include Tompkins Financial (due to strong financial fundamentals and a recent slide in its stock price that continues to make an attractive entry point), 1st Source (due to strong historic returns and impressive revenue, earnings, and dividend growth), Chesapeake Financial (due to an attractive valuation and impressive recent performance), and Farmers and Merchants (due to impressive quality and financial ratios along with strong revenue and earnings growth).

Due to the significant declines in revenue and earnings over the past five years, I think Westamerica should be avoided at the moment. It does offer an attractive dividend yield, but its growth has stalled. With its payout ratio increasing by over 40% over the past five years, I don't think this trend will be changing. It is the one stock out of the 12 reviewed that I think investors should steer clear of because better investment options are available.

The remaining seven stocks I believe continue to be strong investment options, I just don't believe they offer better potential returns based on their past performance, current pricing, and overall dividend history than the four stocks I selected above as buys. For example, while Eagle Financial Services had the fourth highest overall score total, it has been the worst performing stock over the past five years and has struggled to see significant revenue and earnings growth. That concerns me. While its dividend remains solid, I like my investments to offer solid overall returns as well. I feel like the four stocks I selected are best suited to do just that. As always, I suggest individual investors perform their own research before making any investment decisions.

Disclosure: I am/we are long TMP.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.