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Citigroup Aces Fed’s Stress Test — Good for Its Stock, Dividend Growth

Well, This relief! The Federal Reserve has given the largest banks in America an official health report.

The Fed conducted its annual stress test in the banking sector and determined that the big boys’ capital reserves are large enough to go through a crisis.

No one wants to see a repeat of the 2008 collapse, which is why the Fed began its annual stress tests. But the result was that they kept the big banks in the short strip for more than a decade.

Without the blessing of the Fed, they are not allowed to raise their dividends or engage in repurchase of shares.

Dividend reduction from stress tests

We operate in a more secure financial system because these tests force banks to be more conservative. But a byproduct of the reforms is that investors have lost interest in the sector.

It’s a mistake.

Bank stocks are now super cheap and offer some of the highest dividends in any major sector. As a point case, let’s look at Citigroup Inc. (Symbol: third).

Citigroup stock applause An impressive 4.4%, which is higher than what you will find in all bonds, except for the most speculative these days. And its dividend distribution ratio is only 24%.

In plain English, City pays only $ 0.24 in dividends for every dollar of profits.

Banks are not a high-growth sector, so a lower ratio here is preferable. Most big banks have relationships in the high teens to twenties, so City is right in the middle.

The bank has a lot of track for dividend growth – more so now that the Fed has given them a clean health account in the annual stress test. (Citi has not yet announced plans to raise its dividend, though I think a dividend hike or a repurchase announcement of shares is expected over the next month.)

Is City stock a buy?

I ran C through the chief investment strategist, Adam Odell, the proprietor of a six-share stock rating system that differentiates companies through three basic factors and three technical factors.

We run this model daily on a universe of more than 8,000 stocks and rate them based on “overall rating”. These ratings range from 0 to 100, with 0 being “worst” and 100 being “best”. Anything over 60 is “bullish,” meaning we expect it to double the market’s return over the next 12 months.

Citigroup stock rating

Citigroup Inc. Stock Rating On June 28, 2022.

City’s stock strength rating is a “Bear” 29 Out of 100.

But the high return and potential for dividend growth warrant a deeper look.

value: As I mentioned, banks are cheap now, and City is cheap among banks as well. Its value factor rating is a star 87.

As we dig into the depths of the numbers, the story continues to improve. Citi trades at an extremely low price-to-earnings ratio (P / E) of 5. Yes, 5.

At an exorbitant market, one of the largest banks in the world trades at 5 of profits.

Banks are generally cheap. Most large banks have a P / E ratio in the range of 8 to 10. But City is cheap in this index even by the standards of other banks. For comparison, the ratio of the S&P 500 is around 20.

C is also traded for 0.5 times the book value – a great bargain.

Even if gains are bathed in a recession later this year, City shares do cheap Right now.

quality: Citi “Bull” rating 61 On our quality factor. And remember, banks tend to be punished here due to their high debt levels. (Balance strength contributes greatly to the factor score).

City’s high margins compensate here, pulling the overall score higher.

growth: City also earns respectable 54 On our growth factor. Our growth factor takes into account the growth rates in sales and profits already 10 years back, and the Fed test has ruined the growth of the big banks.

The growth mark of the “middle of the package” here is impressive!

Volatility: City rates “Bear” 25 On marking our volatility. Banks were volatile this year, as was much of the market. Keep this in mind if large stock price moves will keep you awake at night.

amplitude: By the same token, bank shares have risen worse than the broad market this year. City ranks an 18 On our momentum factor.

size: Finally, we come to the size. As one of the largest banks in the world, Citi’s 0 The rating could not have dropped lower.

So what should we do about all this?

Citi’s shares are cheap enough for me to see them buy today.

But I do not blame you if you decide to be extra careful and wait for the evidence that the stock has stopped flowing.

Our momentum score always looks back and will never time a bias.

The Bottom Line: When our momentum score improves to 60 or higher, you will know that stocks are on the rise. You can search Citi’s stock rating on our home page at any time.

If you feel comfortable dipping your toe today, another option is to go into the average, devour some of the stock now and add to the position as the momentum improves.

To ensure profits,

Charles Saysmore_Sig

Charles Seismore, co-editor, Green Zone Fortunes

Charles Sizemore Is the co – editor of Green Zone Fortunes And specializes in income and retirement issues. He is also a frequent guest on CNBC, Bloomberg and Fox Business.

Citigroup Aces Fed’s Stress Test — Good for Its Stock, Dividend Growth Source link Citigroup Aces Fed’s Stress Test — Good for Its Stock, Dividend Growth

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