Associated Banc-Corp (ASB - Free Report) announced a 7.1% hike in its quarterly cash dividend. The new dividend of 15 cents per share will be paid on Mar 15 to shareholders on record as of Mar 1.
Based on yesterday’s closing price of $24.25 per share, the dividend yield is 2.47%.
The hike comes after the company increased its dividend by 16.7% in October 2017. In fact, given a solid capital and liquidity position, the company is expected to continue enhancing shareholder value through efficient capital-deployment activities.
However, is it worth considering Associated Banc-Corp stock for earning this dividend income?
Let’s delve deeper into its financial performance and fundamentals to understand the risk and reward.
Revenues: Driven by continued growth in loans, the company’s revenues have witnessed a CAGR of 4.5% over the last five years (2013-2017). Moreover, its projected sales growth of 13.2% and 4.9% for 2018 and 2019, respectively, ensures the continuation of uptrend in revenues.
Earnings: Over the last three-five years, the company has witnessed earnings per share (EPS) growth of nearly 6.7%. Also, the company is expected to deliver a strong earnings performance as indicated by its projected EPS growth of nearly 16% for 2018 and 9.3% for 2019.
Notably, its acquisition of Whitnell & Co. and Bank Mutual are also expected to be accretive to its 2018 and 2019 earnings, respectively.
Valuation: Associated Banc-Corp stock looks undervalued based on its price-to-book (P/B) and price-to-sales (P/S) ratios. The company currently has a P/B ratio of 1.22 and a P/S ratio of 3.48, which are below the industry averages of 1.57 and 3.49, respectively.
Leverage: Associated Banc-Corp has a debt/equity ratio of 1.10, which compares unfavorably with the industry average of 0.45. This indicates that the company has a higher debt burden relative to the industry.
Return on Equity (ROE): The company’s ROE of 8.05% is lower than the industry average of 9.43%. This reflects that it is less efficient in utilizing shareholder funds compared with its peers.
Expenses: Over the last five years (2013–2017), the company’s expenses have witnessed a CAGR of nearly 1%. The rise has been primarily due to higher personnel costs and FDIC expenses. Moreover, given the company’s efforts to grow inorganically and its continued investment in franchise, expenses are expected to increase further.
Share Price Movement: The company’s price performance does not look impressive. Its shares have gained only 2.8% in 2017, underperforming 4.6% growth for the industry it belongs to.
While elevated expenses, a higher debt burden and inferior ROE makes us a little apprehensive about the stock, we believe that it is a wise idea to add the stock to your portfolio now, given its solid earnings and sales growth prospects, and favorable valuation.
Moreover, its Zacks Consensus Estimate for the current-year earnings has also been revised nearly 8% upward over the last 30 days, indicating analysts’ optimism regarding its earnings growth potential. Thus, the stock currently carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
A few other stocks in the same space worth considering are Huntington Bancshares Incorporated (HBAN - Free Report) , Commerce Bancshares, Inc. (CBSH - Free Report) and Enterprise Financial Services Corp (EFSC - Free Report) , each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Huntington Bancshares’ Zacks Consensus Estimate for current-year earnings has increased 8.1% in the last 30 days. The company’s share price has increased 16.3% in the past six months.
Commerce Bancshares witnessed an upward earnings estimate revision of 11.6% for the current year, in the last 30 days. Its share price has risen 3.5% in the past six months.
Enterprise Financial’s shares have gained 20.6% in the last six months and its earnings estimates have been revised 13.1% upward, in the last 30 days.
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