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Although many banks are still struggling to generate strong loan growth and credit quality, People's United Financial, Inc. (PBCT - Free Report) has managed to buck this trend.

The company recently reported strong third quarter results marked by stellar organic loan growth and solid credit quality. Earnings per share more than doubled year-over-year and came in 12% ahead of the Zacks Consensus Estimate, prompting analysts to raise their estimates for the remainder of the year.

It is a Zacks #2 Rank (Buy) stock.

The company also pays a dividend that yields a juicy 5.1%. And unlike many banks in 2008, PBCT did not cut its dividend during the financial crisis.

Company Description

People's United Financial is a bank with 372 branches in Connecticut, Massachusetts, Vermont, New York, New Hampshire and Maine. The company was founded in 1842 and is headquartered in Bridgeport, Connecticut.

It has a market cap of $4.7 billion.

Third Quarter Results

People's United Financial reported better than expected results for the third quarter of 2011 on October 20. Earnings per share came in at 19 cents, beating the Zacks Consensus Estimate by 2 cents. It was a whopping 138% increase over the same quarter in 2010.

Net interest income surged 37% year-over-year driven by solid organic loan growth and a 37 basis point expansion in the net margin to a solid 4.11%. Meanwhile, non-interest income jumped 25% over the same period.

Credit quality was strong considering the terrible housing market and sluggish economy. Net loan charge offs were just 0.27% of average loans, down 31 basis points from the same quarter in 2010 and well below the industry average.

The company managed its operating expenses well too, as the efficiency ratio improved from 71.2% to 63.1% in the quarter.

Strong Growth Ahead

Following the company's strong Q3 results, analysts mostly raised their estimates for the remainder of 2011, sending the stock to a Zacks #2 Rank (Buy).

Based on consensus estimates, analysts project strong earnings growth from People's United Financial over the next two years. The 2011 Zacks Consensus Estimate is $0.67, representing 86% EPS growth over 2010. The 2012 consensus estimate is 28% higher at $0.86.

Analysts expect the company to grow its bottom line through continued commercial loan growth, cost containment and stock buybacks.

Big Dividend

In addition to strong earnings growth, People's United Financial pays a dividend that yields a juicy 5.1%. As you can see in the chart below, the company has steadily increased its dividend over the last decade, even during the Great Recession:

PBCT: People's United Financial, Inc.

Reasonable Price

The valuation picture looks reasonable too. Shares trade at 14.8x 12-month forward earnings, about half its 10-year median of 29.4x.

Its price to book ratio is only 0.9, in-line with the peer group.

The Bottom Line

With strong earnings growth, solid credit quality, rising earnings estimates, a hefty 5.1% dividend yield and reasonable valuation, People's United Financial offers investors excellent total return potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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