The financial sector is especially volatile during recessions. Several large U.S. banks cut their dividends during the Great Recession of 2007-2009, including JP Morgan (JPM), Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), and many more.
Although these banks recovered in the years since the Great Recession ended, both in terms of profitability and dividends paid to shareholders, the stain of their huge dividend cuts remains.
Meanwhile, a much lesser-known bank stock—People’s United Financial, Inc. (PBCT)—did not cut its dividend like so many others did. In fact, People’s United is a Dividend Aristocrat that has increased its dividend for 25 years in a row, even during the Great Recession.
People's United Financial, Inc. is a diversified bank. Its commercial segment provides commercial real estate lending, equipment financing, cash management, deposit gathering, and other services for businesses. Its retail arm offers mortgages, home equity lending, and other consumer loans, along with consumer deposits and merchant services. People’s United also engages in life insurance, brokerage, wealth management, and financial advisory services.
In the last six years, People’s United has grown its loans and its deposits at an 8% average annual rate. 2018 was another very good year for People’s United. In the most recent quarter, People’s United increased its earnings-per-share by 16% from the year-ago quarter, mostly due to the acquisition of First Connecticut and a boost from tax reform. The acquisition helped grow loans and deposits by 9% year-over-year. For the full year, earnings-per-share increased 26%.
There is plenty of room for continued growth in the years ahead. Acquisitions will help the company expand its geographic reach and customer base. People’s United Financial recently acquired VAR Technology Finance, which focuses on serving the technological sector. People’s United Financial also announced the acquisition of BSB Bancorp in November. This acquisition will enhance the presence of the company in the Greater Boston area.
Aside from acquisitions, rising interest rates are a separate growth catalyst for People’s United. During the last two years, People’s United financial has greatly expanded its net interest margin, from 2.96% in the 2017 second quarter to 3.17% in the most recent quarter. Higher interest rates are a broad tailwind for regional banks, as it allows them to earn more money from loans, while interest paid on deposits typically rises at a slower rate.
Bank On People’s United For Dividend Growth
People’s United is more conservatively managed than many of the big banks. It avoided many of the risky lending and trading practices that nearly brought the big U.S. banks to the brink of collapse during the Great Recession. This helped the company continue to increase its dividend each year of the Great Recession, a rare feat among bank stocks.
The dividend is highly secure. People’s United reported operating earnings-per-share of $1.31 in 2018; the current dividend payout stands at $0.70 per share, for a dividend payout ratio of 53%.
People’s United shares offer a current dividend yield of 4.2%, more than double the average dividend yield in the S&P 500 Index. Not only is People’s United an excellent dividend growth stock with a long history of annual dividend increases, it is a high-yield stock as well.
Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.
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