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Monday, December 22, 2008

* Stock Analysis: Associated Banc-Corp (ASBC)

This article originally appeared on The DIV-Net December 15, 2008.

Linked here is a PDF copy of my detailed analysis of Associated Banc-Corp (ASBC). Below are some highlights from the above linked analysis:

Company Description: Associated Banc-Corp operates as the bank holding company in the United States. It offers various banking and nonbanking services to individuals, businesses, and governments/municipalities in Wisconsin, Minnesota, and Illinois.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
  1. Avg. High Yield Price
  2. 20-Year DCF Price
  3. Avg. P/E Price
  4. Graham Number
ASBC is trading at a discount to 1.), 3.) and 4.) above. If I exclude the high and low valuations and average the remaining two, ASBC is trading at a 11.9% discount. ASBC earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
  1. Rolling 4-yr Div. > 15%
  2. Dividend Growth Rate
  3. Years of Div. Growth
  4. 1-Yr. > 5-Yr Growth
  5. Payout 15% of avg.
ASBC earned one Star in this section for 3.) above. ASBC has paid a cash dividend to shareholders every year since 1970 and has increased its dividend payments for 38 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
  1. NPV MMA Diff.
  2. Years to >MMA
ASBC earned both of the available Stars in this section. The NPV MMA Diff. of the $13,764 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as ASBC has. ASBC's current yield of 7.12% exceeds the 4.61% estimated 20-year average MMA rate.

Other: ASBC is a member of the Broad Dividend Achievers™ Index. ASBC has a long history of profitability. The company is a conservative lender and has avoided lending exposure to the most troubled areas of the U.S. economy. Risks include a severe and protracted economic slowdown adversely affecting loan growth and credit quality, along with its small size and lack of geographical diversity.

Conclusion: ASBC earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks ASBC as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $28.14 for ASBC's NPV MMA Differential to drop to the $3,000 that I like to see. At that price the stock would yield 4.51%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $3,000 NPV MMA Differential I'm looking for, the calculated rate is -2.8%. This dividend growth rate is well below the 4.1% used in this analysis; thus, providing a margin of safety.

I currently have too many bank holdings. Otherwise, I would give ASBC serious consideration at prices below $21.14. At the $18.63 close (12/12/08), it is noteworthy to point out that ASBC is trading below its Graham Number of $19.77, indicating that is also an excellent value buy. For additional information, including ASBC’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in ASBC (0.0% of my Income Portfolio).

What are your thoughts on ASBC?

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