Daily Gains Letter

A High Dividend Yield Investment You Can Take to the Bank

By for Daily Gains Letter | Feb 15, 2013

















DL_Feb_15_2013_JohnA retirement portfolio is more than just a group of stocks. It’s a collection of investments that reflect an investor’s personal preferences, including asset class (stocks, bonds, futures, options, etc.) and sectors (consumer goods, health care, basic materials, etc.).

Investment portfolios will also lean more toward being either income or growth oriented. As a result, an income-oriented investor will select different stocks than a growth-oriented investor will.

That said, most investors like to have a balance of both. While capital appreciation is a great long-term reward, predictable and reliable income through dividends provides an excellent, steady stream of earnings that can be either paid out or reinvested into the respective companies.

One of the joys of dividend-yielding stocks is that they can provide both income and capital appreciation. And if the fundamentally strong dividend-yielding stock you’re investing in has a long track record of providing higher dividends, you don’t need to worry as much about the day-to-day or even month-to-month movements in the market.

People’s United Financial, Inc. (NASDAQ/PBCT) is the holding company for People’s United Bank, a diversified financial services company with $30.0 billion in assets. Founded in 1842, People’s United Bank is a premier, community-based regional bank in the northeast offering commercial and retail banking, as well as wealth management services, through a network of 419 retail locations in Connecticut, New York, Massachusetts, Vermont, New Hampshire, and Maine.

The company offers a generous 5.1% dividend yield, while its recently issued 10-year bond yields 3.5%. A fast-growing bank, People’s United Financial could become an attractive acquisition for a larger bank.

The company announced that fourth-quarter net income increased 47.8% year-over-year to $61.2 million, or $0.18 per share. Operating earnings were $63.2 million, or $0.19 per share, for the fourth quarter of 2012, compared to $57.1 million, or $0.17 per share, for the fourth quarter of 2011. (Source: People’s United Financial press release, “People’s United Financial Reports Fourth Quarter Operating Earnings of $0.19 Per Share; Net Income of $0.18 Per Share,” January 17, 2013.)

For the year ended December 31, 2012, net income totaled $245.3 million, or $0.72 per share, a 27.5% increase over the $192.4 million, or $0.55 per share, for 2011. Operating earnings were $253.9 million, or $0.75 per share, for 2012, compared to $230.7 million, or $0.66 per share, for 2011.

During the fourth quarter of 2012, the company repurchased 4.7 million shares of People’s United Financial common stock at a total cost of $56.0 million and, in 2012, it repurchased 18.2 million shares of common stock at a total cost of $220 million. Under the new share repurchase authorization announced in November 2012, 33.4 million shares of common stock remain available for repurchase.

“Our performance throughout 2012 continues to build on the execution of our primary objectives—optimizing existing businesses and efficiently deploying capital,” stated Jack Barnes, President and CEO. “Our financial results in 2012 reflect stable operating metrics in a challenging economic environment, supported by solid loan and deposit growth, strength in our fee income businesses and meaningful cost control.”

Kirk W. Walters, Senior Executive Vice President and CFO added, “The company’s performance in the fourth quarter reflects our continued focus on operating leverage through increased fee-based income and ongoing expense control to mitigate the negative impact of this prolonged low interest rate environment.”

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Chart courtesy of www.StockCharts.com

People’s Bank traded in a bullish trend from 1991, when it was a sub-$1.00 penny stock, to 2007, when it traded over $17.00 per share. While the company’s share price has traded in a tight range since mid-2007, it’s important to note that it remained virtually unaffected by the housing bubble and subsequent economic crisis. In fact, thanks to the company’s strong financial position, it was able to add to its portfolio when Butler Bank of Lowell, Massachusetts, failed in April 2010.

By comparison, between 2007 and 2012, the Federal Deposit Insurance Corporation (FDIC) closed over 460 banks. Washington Mutual was the largest to fail, with assets of $307 billion. (Source: FDIC web site, “Failed Bank List,” last accessed February 14, 2013.)

Going forward, the company has a strong financial foothold in affluent areas like Connecticut and Vermont, and is in the top 10 for deposit share in Massachusetts. People’s Bank is a great option for patient, risk-averse investors looking to fortify their investment portfolio with a solid income stream and capital growth. Note that this is not a specific recommendation to buy; just a suggestion of the type of stock an investor can look for to pad their portfolio.

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