Dividends Are King - Citigroup (C)
Aug 23rd, 2007 by Shaun Carter
The second stock in my Dividends Are King series is Citigroup (C). Citigroup is in the business of banking and provides a multitude of services to its customers ranging from credit cards, student loans, checking/savings account and business credit services. Citigroup was founded in 1812 and has gone through many name changes over the years as it acquires more business entities.
Citigroup is in a sector that has been out of favor amid the growing concern over the subprime mortgage meltdown. However, Citigroup is a very broadly diversified financial services organization and will not be affected as severely as the pure-play mortgage lenders. On of the most attractive things about Citigroup is the dividend, which is currently about 4.5%. The dividend here is regularly increased and will provide for very strong cashflow into the future and at the current level of $48 per share, there is definitely some upside on the capital appreciation as well.
While most financial stocks are in the dumps, the P/E of 11 on Citigroup is quite low given its position in the marketplace as the leader. Citigroup’s five-year average dividend yield is 2.9%, a full 1.5 points below its level now. This shows a significant amount of undervaluation and signifies a good entry point here in the mid 40’s.
Citigroup was recently one of the financial institutions to borrow money from the fed discount window, taking some $500 Million. In the news release it says Citigroup borrowed the money “on behalf of clients”, since then several other banks have tapped the discount window for the same amount.
Analyst estimates call for better-than-industry earnings growth over the next year and five years out as well, with price targets currently around $60/share. However, the most recent upgrade/downgrade of the stock was a downgrade by Punk, Ziegel, and Co. from Buy to Market Perform on July 18, 2007. Since that downgrade the stock has fallen some, but at these current levels it’s moved into an accumulation territory.
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