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One Stock that Appeals to Value and Income
Investors |
Published:
May 9,
2007
Citigroup (NYSE: C) is one of the world's largest and most
well-known financial institutions, operating in more than 100 countries
around the globe. The company is a behemoth in the commercial banking
industry and also offers a broad range of financial products and
services, including investment banking, credit cards, securities
brokerage, and comprehensive wealth management.
For those that are attracted to the safety and stability of large
companies, they don't come much bigger than Citigroup. The company has
200 million customers, generated more than $140 billion in revenues last
year, and boasts assets in excess of $1 trillion. In fact, last year's
profit of $21 billion is greater than the entire GDP of more than 100
different nations.
However, don't make the mistake of thinking this is a lumbering giant
with no growth drivers. Citi has built a vast network throughout the
world's emerging markets, which helped the company grow its deposit base
by an impressive +20% last year. The company's expansive reach should
fuel growth for years to come, and analysts are targeting healthy
earnings growth of +10% annually over the next five years.
That, in turn, should enable management to continue boosting its
dividends at one of the fastest rates around. Since 2002, the firm's
quarterly payout has tripled, climbing from $0.18 per share to the
current $0.54.
At the moment, the $2.16 annual dividend works out to a yield of about
4% -- strong, but not enough to truly excite some income-oriented
investors. However, keep in mind that the firm raked in earnings from
continuing operations of $4.25 per share last year, so it is only paying
out about half of last year's profits -- there's plenty left in the tank
for future increases.
Over the past decade, Citigroup's quarterly dividend has jumped from
just $0.05 per share to $0.54, an increase of about +27% annually. As
cash flow growth slows, we don't expect that type of performance to be
duplicated. However, if the company can manage just half that pace
(+13%), then payments will double in less than six years, and then
double again after the next six. At that point, the annual payout will
be $9.36 per share -- or about +17% of the current share price.
And with a fair value of $68, shareholders can reasonably expect some
upside potential in the shares as well, in addition to those steadily
rising quarterly paychecks.
Good investing!
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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Income Security
of the Month
Our "Income Security of the Month" for July 2008 invests in
a fast-growing overseas market that doesn't get much exposure in the
mainstream financial press. And although it typically makes enormous
annual dividend payments -- it has paid an average dividend of 24.9%
per year over the past five years -- this fund is perhaps most
appealing for its total return potential. Specifically, the fund has
delivered total returns of +263.9% since 2003, and
it ranks in the top 10% of its category over the past decade.
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