Citigroup Inc: Is C Stock a Top Dividend Growth Stock?
December 30, 2016
Dividend Investors Should Take a Good Look at C Stock
Citigroup Inc (NYSE:C) stock is top dividend growth stock that should not be ignored by investors.
The dividend yield offered by the bank’s stock is 1.08%, which is based on the current trading price of $59.24. While the dividend yield is not that high compared to other investment opportunities, the real story is the dividend’s growth, with the possibility of more in the future.
The reason for potential hikes is the current payout ratio of 6.68%. And, since 2015, the dividend has seen a growth rate of 1,500%, which indicates that the company has prioritized returning money to shareholders at a increasing rate over time.
Share buybacks have also been in play for Citigroup. In June of this year, a $10.4-billion share repurchase program was approved. This program is expected to be completed in June 2017. (Source: “Citi Announces 2016 Planned Capital Actions,” Citigroup Inc, June 29, 2016.)
The benefit of share buybacks for investors is the impact on their total net worth. A share repurchase does not affect the overall market cap of the company, but rather the number of shares that are outstanding. More specifically, buybacks make each individual remaining share worth a greater percentage of the company, since there are fewer outstanding shares.
Fundamental Overview
C stock’s price-to-earnings (P/E) ratio, which is helpful for determining if it is trading at an attractive valuation, is 13.2 times. This is below the industry average of 16.8 times and less than the S&P 500’s ratio of 25.88 times.
The price-to-book ratio is another method for figuring out how cheap or expensive a stock is. At this time, this ratio is 0.79 times for Citigroup stock, determined by using dividing the current trading price of $59.24 by the book value per share of $74.51. Therefore, based on this ratio, the shares are trading at a discount.
Growth Opportunities
Citigroup is investing over $1.0 billion into operations in Mexico over the next few years. Areas of investment include digital banking and more ATMs, as well as a focus on working with small- and medium-sized businesses (Source: “Citi to Invest more than $1 Billion in Banco Nacional de México,” Citigroup Inc, October 4, 2016.)
As for the company’s home country, margins in the U.S. are expected to be improving for Citigroup thanks to interest rates increasing. Currently, interest rates are sitting near historic lows, with two rate hikes in the last 13 months, with more expected as the U.S. economy continues to improve.
This affects the net interest margin, which is a key metric within the bank. The way it works is that money is taken in by the bank and interest is paid to customers. Then, on the other end of the process, Citigroup will provide a loan and charge the client a higher interest rate when compared to what is being earned on the savings account. The difference between the two rates is what is known as the net interest margin. As rates increase, this margin is expected to expand, which will be apparent in the company’s bottom line.
Final Thoughts on C Stock
There are not many opportunities in the marketplace that reward shareholders, are cheap on a valuation basis, and have growth opportunities. And yet, these are all reasons Citigroup stock is worth considering.
With all this going for C stock, it’s clearly a top dividend growth stock. The evidence is all there, and future opportunities and expected growth from the business operations only back this up further.
