Quick Hitters: Four Financial Stocks

boxing speed bagIn this F.A.S.T. Graphs™ quick hitter, we’ll look at analyst estimates of the forward 2-year total annual return rate of four dividend growth financial powerhouses.  The industry has changed dramatically since the crash in 2008, so we’ll base the time frame of our estimates just before that crash with a 7-year average P/E.  We’re assuming this average P/E stays constant in the future.

The Chubb Corporation (CB).

“Chubb Corp is a holding company. The Company, through its subsidiaries is engaged in property and casualty insurance.” ~Seeking Alpha

Years of Dividend Raises: 28

Dividend Yield: 1.9%

Dividend Growth Rate 3 Year Average: 8.69%

Revenue in 2004 (USD MILLION): $13,177

Revenue in 2013 (USD MILLION): $13,947

Payout Ratio: 23%

TTM P/E: 12.2

Forward P/E: 13.1

7 Year Normal P/E: 12.4

2015_JAN_FG_CB

2015_JAN_FG_CB2We see that The Chubb Corporation has missed analyst 2-year forward earnings predictions only 15% of the time over the last 15 years of available data.

With its recent run up in price, Chubb appears overvalued to its 7-year normal P/E and analyst predictions.  In two years’ time, an investor today would have seen price depreciation of -$4.37 and a total annual return rate of only 0.11%.  However, this is a wonderful company that has been growing for a long time despite flat revenues.  Those dividends don’t look like they’ll stop increasing in the mid to high single digits any time soon.  I would become interested if it were to fall back to its August 2014 prices in the mid $80’s or so.

Mastercard (MA)

“MasterCard Inc is a global payment solutions company that provides various services in support of the credit, debit & related payment programs to financial institutions and other entities that are its customers.” ~Seeking Alpha

Years of Dividend Raises: 3

Dividend Yield: 0.5%

Dividend Growth Rate 3 Year Average: 103.54%

Revenue in 2004 (USD MILLION): $2,593

Revenue in 2013 (USD MILLION): $8,346

Payout Ratio: 17%

TTM P/E:  28.9

Forward P/E: 19.6

7 Year Normal P/E:  23.3

2015_JAN_FG_MA

2015_JAN_FG_MA2Mastercard has never missed analyst 2-year forward earnings predictions over the last 15 years of available data.

Mastercard has also run up in price since it saw the low $70’s in October.  Based on its 7-year normal P/E and analyst predictions, an investor at today’s prices can expect a 2-year total annual return rate of 9.76%.  This return might not seem like much on the surface, but unlike Chubb above, Mastercard has grown its revenue by 221.87% in just 9 years years.  The .05% dividend yield looks like a joke at first glance, but in its 3 years of raising dividends, they’ve increased by 966.67%.  This company is growing very fast, and I love the long term potential here;  I want to eventually add it to my portfolio alongside my holding of Visa (V).

The Toronto-Dominion Bank (TD)

“Toronto-Dominion Bank is a Canadian bank. It provides Canadian Personal and Commercial Banking, Wealth and Insurance, US Personal and Commercial Banking, and Wholesale Banking.” ~Seeking Alpha

Years of Dividend Raises:  4

Dividend Yield: 3.97%

Dividend Growth Rate 3 Year Average: 11.95%

Revenue in 2005 (USD MILLION): $11,896

Revenue in 2014 (USD MILLION): $29,961

Payout Ratio: 51%

TTM P/E:  12.5

Forward P/E: 10.7

7 Year Normal P/E:  12.2

2015_JAN_FG_TD

2015_JAN_FG_TD2The Toronto-Dominion Bank has missed analyst 2-year forward earnings predictions 23% of the time over the last 15 years of available data.

Unlike our first two businesses, the stock price of TD has taken a dramatic dive recently.  Based on its 7-year normal P/E and analyst predictions, an investor could expect a 2-year total annual return rate of 14.98% at today’s prices.  That’s an attractive return, and I believe the stock market’s worries over consumer debt, real estate, and oil are overblown.  I recently purchased competitor Bank of Nova Scotia (BNS) who has even more oil exposure than TD.  Several of the major Canadian banks seem to offer some of the best value in today’s market.  I would love to throw some TD shares into my ROTH IRA.

T. Rowe Price Group, Inc. (TROW)

“T. Rowe Price Group Inc is a financial services holding company, which through its subsidiaries, provides investment advisory services to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios.” ~Seeking Alpha

Years of Dividend Raises: 27

Dividend Yield: 2.14%

Dividend Growth Rate 3 Year Average: 23.51%

Revenue in 2004 (USD MILLION): $1,277

Revenue in 2013 (USD MILLION): $3,484

Payout Ratio: 40%

TTM P/E:  18.7

Forward P/E: 14.6

7 Year Normal P/E:  21.6

2015_JAN_FG_TROW

2015_JAN_FG_TROW2T. Rowe Price Group has missed analyst 2-year forward earnings predictions 25% of the time over the last 15 years of available data.

We have our winner, with the highest analyst 2-year forward total annual return rate of 22.43%.  I love this fast growing asset management company.  I almost initiated a position but recently went with competitor Franklin Resources (BEN) instead.  However, I would love to become a shareholder of TROW at some point.

Normal P/E is just one of many different ways to value a stock.  For instance, if you don’t think TROW’s P/E ratio will stay near its 7-year average of 21.6 and you only estimate the analyst forward annual return compared to the standard attractive P/E value of 15, you’ll see how different the total annual rate of return looks on our winner TROW.

2015_JAN_FG_TROW3

TROW now has an analyst 2-year forward total annual rate of return of only 2.27% and depreciates in price by $0.67.

While this is interesting research, a true dividend growth investor isn’t in it for a 2-year short term capital gain like I’ve shown in this article.  We don’t care about a stock’s price once we’ve already invested in it because we’re in it for those reliable dividends that grow each and every year.  However, when valuing a company one might benefit from this information when looking at historical and current data trends. While I’ve never held much faith in analyst predictions, it’s worth noting that the featured businesses hit or beat analyst 2-year forward earnings estimates about 80% of the time dating back 15 years.  Those are pretty accurate predictions.

Do you look at analyst forward P/E?  What are your thoughts on these businesses?  

My Dividend Growth

http://www.mydividendgrowth.com

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24 thoughts on “Quick Hitters: Four Financial Stocks
  1. writing2reality

    Some good companies here Ryan. I know a few people who work at T. Rowe, and many of them have leveraged the employee stock purchase program, buying in at 15% discount and more depending on the timing and change in market price. Talk about a great way to get into an awesome company, even if you only end up arbitraging the gains to diversify elsewhere.

     
    Reply
    1. My Dividend Growth

      W2R,

      I own a competitor to each of these businesses and eventually want to own the top two in each area. I would love to hold any of these at the right price. I’m so jealous of those T. Rowe employee benefits, what a great place to work. I get absolutely nothing in benefits as a freelancer which can get frustrating. The network I’ve been at for over a year has benefits for most departments, but still considers post production freelance and has a separate payment company for us which is very strange since we work right with everyone else. If I stay here much longer I’d hope they change that at some point.

      Best Regards,
      Ryan

       
      Reply
    2. Vivianne

      I know a guy who work for capital one doing the same thing, buy capital one at 15% discount! when he can exercise it! he’d sell it and diversify to something else. Using the 72 rule, he double his investment every 5 years. He does very well in the bull market.

       
      Reply
    1. My Dividend Growth

      Tawcan, me too! I really like your current Canadian bank holdings. I really wish I had bought more Visa before it popped up in price, oh well maybe I’ll have another chance eventually. Thanks for stopping by!

      Best,
      Ryan

       
      Reply
  2. Long Term Investing

    Hi Ryan,

    Your comment on TD and canadian banks is spot on…They are definitely on my radar.
    I have owned MA for quite some time but with the successful launch of Apple Pay, I just realized that the credit bank industry can be massively disrupted in 6 months….It did not happen yet and Apple Pay relies for now on the Visa, Mastercard and Amex of the world, but it is just a matter of time…Don’t you think?

     
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    1. My Dividend Growth

      LTI,

      Good to hear from you. I hope the banks stay depreciated for a while because capital is a bit tight at the moment and I’d love the chance to invest more here.

      Your comment on Mastercard reminded me of this article I read and liked on seeking alpha: http://seekingalpha.com/article/2661835-there-is-no-chance-apple-pay-will-disrupt-the-payments-ecosystem I tend to agree with that author and just don’t see credit card businesses losing much strength any time soon. Pay Pal does look to be a threat though. I’d be curious to hear your thoughts if you sell, but I imagine you’d be very happy several years from now if you hang on to your MA shares 🙂

      Best Wishes,
      Ryan

       
      Reply
  3. Dividend Mantra

    Ryan,

    Some pretty solid stocks there. And a nice mix of growth and value. 🙂

    I’m interested in perhaps adding to one of my Canadian bank holdings. And I think TROW is one of the best stocks in this sector, along with your Ben. Operated at a high level for a long period of time.

    Thanks for sharing!

    Best regards.

     
    Reply
    1. My Dividend Growth

      Jason,

      Good to hear from you. There seems to be some great value in the financial sector, at least that’s where I’ve been buying and I’d be happy to own any of these businesses at the right price.
      There seems to be an extra amount of noise / concern in the Canadian banks at the moment, and I imagine now would be a great time to add. I’m eager to see your next purchase, and to read all of you January reports, keep up the excellent work!

      All my best,
      Ryan

       
      Reply
  4. CG

    I like the idea of owning some of the Candian banks. the “seem” more stable than some of the US financials and also cheaper/easier to get into. I added to TD today since its near 52 week lows. Hopefully it has found a bottom.

     
    Reply
    1. My Dividend Growth

      CG,

      Congrats on that awesome add, I want to join you as a shareholder eventually 🙂 Who knows what will happen in the short term, but I think a few years down the road you’re going to be super glad you added here. Keep up that great work!

      Best Wishes,
      Ryan

       
      Reply
  5. DivGuy

    Have you looked into INTACT FINANCIAL (IFC)? It’s one of my top 3 for Canadian! 😉 I also very much like MA and TD, although I would prefer National Bank for this year.

     
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    1. My Dividend Growth

      DivGuy,

      I hadn’t heard of IFC before, but it looks wonderful at first glance and I’ll be happy to dig in to some deeper research. It’s great that there are so many strong Canadian financials. Thanks for the comment!

      Best Wishes,
      Ryan

       
      Reply
  6. DivHut

    All four are solid all around. I own TD and CB and will most likely continue to average down on the large Canadian banks as they have all fallen quite a bit from their summertime highs. I still have BMO and CM on my radar but will most likely just average down with one or more Canadian holdings I currently have. Thanks for sharing.

     
    Reply
    1. My Dividend Growth

      DivHut,

      Good to hear from you. I want to join you in holding TD and CB eventually, those are super quality businesses. It’s unfortunate Canadian bank prices plummeted so much from the summer, but also a gift if you still believe in the company and do average down. I think that’s what I’ll be doing as well in the coming weeks. I’m secretly hoping for even lower prices in the energy sector after earnings, but we’ll see. I just wish I had more capital to invest at the moment!

      Best Wishes,
      Ryan

       
      Reply
  7. Dividend Gremlin

    Ryan,

    All strong companies. Of them CB and TD are on my watchlist and I have been keeping a strong eye on them, especially CB. CB in my Roth would be an awesome purchase, alas I will probably head towards AFL.

    Of the Canadian banks, all of the big 5 are excellent. I have been satisfied as a CM owner, and I cannot wait for the day to add another one.

    Also, I’m out on your coast for this week of work. Sacramento, going to Tahoe for a day. Nice weather, too bad its been mostly in a conference room.

    – Gremlin

     
    Reply
    1. My Dividend Growth

      DG,

      I think AFL presents a much better valuation at the moment over CB, but there may be more risk in AFL depending on what you’re looking at. I’ll be curious to see which you go with if you do end up with an insurer.

      I’m so curious to see how low these Canadian banks will go and to see if any of the current concerns come to fruition. I’ll likely be buying throughout out it.

      Glad to hear you’re on the west coast! I haven’t been to Sacramento since I was in middle school, but remember liking it. Enjoy your trip to Tahoe, it’s one of the best sights to see on this side of the country. Have fun!

      Best Regards,
      Ryan

       
      Reply
  8. Pingback: Dividend Read | The Dividend Guy Blog

    1. My Dividend Growth

      Thanks Adam,

      I tend to think Canadian banks are best in the business though I don’t really want banks in general as a large weighting in my future portfolio. They seem attractively valued recently and I hope to add a bit more to my tax advantaged IRA without going overboard. You’ve got a cool looking blog over there, I’m glad to have found it and thanks for the comment! 🙂

      Best Wishes,
      ~Ryan

       
      Reply
  9. TwoInvesting

    Thanks for sharing your research. I’ll definitely be looking into BEN and TROW, likely for my Roth IRA so that the future capital gains won’t be taxed. I’ve also been considering MA but am worried the overlap with V might be too much and I could better use that to invest into one of the asset management companies. Other than AAPL, V is my largest investment. What do you thinks? Keep going into V or diversify into the duopoly?

    I’d also like to add some more into CVX…they took a dive today and would make for a great value play, especially over the long term.

     
    Reply
    1. My Dividend Growth

      Scott,

      I’ll be curious to see when you pull the trigger on an asset manager, I’m probably not adding much for a long while but I’d like to eventually own both of those names. I have the opposite tax problem in California where dividends are taxed the highest in the country. Once my dividend income really starts taking off, I may have to move to a more tax friendly state. Ah to think about retirement… so nice but so far away 🙂

      Your MA vs V comment is one I think about a lot and there’s probably no correct answer. Personally, I have no problem diversifying into similar business types, but probably not more than 2 or 3 and then I’d limit the weight of that type of business vs the rest of the sector and then the overall portfolio. When I feel I can add more exposure and two similar businesses are both sound investments, it would boil down to which has the best valuation at the moment. If the valuation looks the same I’d probably add to the smaller position. It could also be as easy as basing your allocation on how many Visa credit card transactions you personally make compared to MasterCard. I’ll be curious to see what you decide to do and I’d kill to have a similar amount of shares as you in AAPL and V!

      I saw CVX slip under $100 for a moment today and I got excited. I’m still holding off and going to try for low to mid $90’s if oil prices can just linger a little longer. I figure I’m not really timing the market since the short term fundamentals have changed so much and if I miss out completely I’m still in a good spot long term. Great comment and good to hear from you!

      Best Wishes,
      ~Ryan

       
      Reply

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