Wednesday, November 30, 2011

Community Trust Bank Corp. (CTBI) High-Yield Dividend Stock Analysis

Linked here is a detailed quantitative analysis of Community Trust Bank Corp. (CTBI). Below are some highlights from the above linked analysis:

Company Description: Community Trust Bank Corp. owns and operates Community Trust Bank, Inc. of Pikeville, KY, which provides commercial banking services in Kentucky andWest Virginia; and a trust company.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these 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

CTBI is trading at a discount to only 3.) above. The stock is trading at a slight premium to its calculated fair value of $26.27. CTBI did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

CTBI earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. CTBI earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1988 and has increased its dividend payments for 31 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) or Treasury bond? 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

The NPV MMA Diff. of the $455 is below the $500 target I look for in a stock that has increased dividends as long as CTBI has. The stock's current yield of 4.62% exceeds the 3.6% estimated 20-year average MMA rate.

Memberships and Peers: CTBI is and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company’s peer group includes: IberiaBank Corp. (IBKC) with a 2.9% yield, Hancock Holding Co. (HBHC) with a 3.5% yield, and Capital City Bank Group Inc. (CCBG) with a 4.1% yield.

Conclusion: CTBI did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks CTBI as a 3 Star-Hold stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $25.98 before CTBI's NPV MMA Differential increased to the $500 minimum that I look for in a stock with 31 years of consecutive dividend increases. At that price the stock would yield 4.7%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 1.5%. This dividend growth rate is slightly higher than the 1.2% used in this analysis, thus providing no margin of safety. CTBI has a risk rating of 1.00 which classifies it as a Low risk stock.

CTBI is a stock I watched for some time before buying. The company has strong financials with a free cash flow payout of 23% and a debt to total capital of 22%. It held its dividend flat for five quarters between June 2009 and June 2010. However, since then it has increased its dividend 3 times in 6 quarters. I will continue to add to my position when the stock is trading below my fair value price of $26.27 and as my allocation allows.

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 was long CTBI (1.3% of my Dividend Growth Portfolio) See a list of all my dividend growth holdings here.

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