Umpqua Holdings Corporation (UMPQ - Free Report) announced a 12.5% dividend increase. The new quarterly dividend of 18 cents per share will be paid on Oct 16 to shareholders on record as of Sep 30. Based on the last day’s closing price of $18.11 per share, the dividend yield is 3.98%.
This is the first dividend hike announced by Umpqua Holdings in the past two years. In September 2015, the company had raised its quarterly dividend by 6.7% to 16 cents per share.
Additionally, the company has a share repurchase program in place (expiring July 2019). As of Jun 30, 2017, the company had 10.6 million shares left under the current buyback authorization.
Apart from these, Umpqua Holdings is enhancing shareholder value through acquisitions. The last major deal — acquisition of Sterling Financial Corporation — was in April 2014. The transaction significantly strengthened the company’s financials and increased market share.
Is Umpqua Holdings Stock Worth Buying Now?
Though the overall banking sector’s prospects look promising, is this Zacks Rank #3 (Hold) stock worth buying to earn this dividend income? Let’s dig deeper to understand the risk and rewards.
Umpqua Holdings stock looks undervalued based on its price-to-book (P/B) ratio. The company currently has a trailing 12-month P/B ratio of 1.01, which is below the industry average of 1.69. Also, the stock has a Value Score of B. The Value Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount.
While the stock looks worth investing based on this, you must consider the fundamentals before taking any decision.
Umpqua Holdings’ revenues witnessed compounded annual growth rate (CAGR) of 9.8%, over the last three years (2014-2016). The increase was largely driven by Sterling Financial deal. However, for the current year, revenues are expected to dip marginally.
Further, Umpqua Holdings’ earnings growth doesn’t look sustainable in the near term. Though the bank has witnessed 6.7% rise in earnings per share over the last three to five years, the trend is anticipated to reverse this year. The company’s earnings are projected to decline nearly 1% for 2017.
Moreover, significant higher level of debt makes sustainability of the above-mentioned capital deployment plans a bit doubtful. The company’s debt equity ratio of 0.31 is higher than 0.18 for the industry.
Also, shares of Umpqua Holdings have rallied 20.5% over the past year, underperforming the industry’s gain of 26.8%.
Just because Umpqua Holdings has announced a dividend hike, we don’t think the stock is worth adding to your portfolio. Projected revenue and earnings decline along with high-debt level make us apprehensive about the stock’s prospects.
Stocks to Consider
Stocks in the same space worth a look include Zions Bancorporation (ZION - Free Report) , People's Utah Bancorp (PUB - Free Report) and Preferred Bank (PFBC - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Zions was revised 8.9% upward for the current year, in the last 60 days. The company’s share price has jumped 42.7% in the past year.
People's Utah Bancorp witnessed a 2.9% upward earnings estimate revision for the current year, in the last 60 days. Its share price has surged 39.3% in the past year.
Preferred Bank recorded a 4.9% upward earnings estimate revision for the current year, in the last 60 days. Its share price has surged 46.2% in the past year.
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