Riding Webster Financial’s preferred shares may serve too late
Stock: Webster Financial Corporation(NYSE:WBS)
Webster Financial Corporation, a $4.9 billion Connecticut-based bank holding company and financial holding company, has a 22x P/E ratio (vs. industry 19x) and a dividend yield of 1.9% (vs. industry 1.8%).
Although lacking any appealing even just at par with the Vanguard S&P 500 ETF’s (ticker VOO) 1.94%, Webster’s preferred E-shares (ticker WBS-E) has an attractive 6.4% albeit non-cumulative at a liquidation value of $25 per piece vs. $25.22 a share at the time of writing.
With one payout, December 15, 2017, remaining on the preferred’s clause before possible be repurchased back by Webster by year-end, a mere 0.40 cents or 1.6% yield per preferred share may not be a prudent investment when accompanied by a -0.87% return upon liquidation netting a possible 0.72% return.
Nonetheless, Webster delivered 10% increase in its interest income (3year average: 7.66%) to $446.5 million and 25.2% profit rise (3year average: 4.88%) to $116.8 million in its recent first half of operations.
James C. Smith, chairman and chief executive officer
“Webster again reported solid business and financial performance, with record levels of net interest income and pre-provision net revenue resulting in record net income and earnings per share growth of over 20 percent from a year ago.
“Our investments in strategic growth initiatives are producing positive results for shareholders as Webster bankers excel in service to our customers and communities.”
Company metrics (some; 3)
1 Net interest margin (NIM)
In the first half, Webster registered 3.25% in its NIM vs. 3.10% a year earlier.
2 CET1 risk-based capital
10.84% as of June compared to 10.50% compared to the same period last year.
3 Return on average tangible common shareholders’ equity (annualized basis) (non-GAAP)
Figures were 12.56% vs. 10.94% last year.
Meanwhile, Webster’s cash also increased by $6.84 million year over year to $231.8 million as of June.
In the past three years, Webster allocated $107 million in capital expenditures, raised $801 million in long-term debt (net repayments and other financing activities), allocated $303 million in repurchases and dividends have represented about 35% of the bank’s free cash flow.
Analysts have an average hold recommendation with a $52.80 target price vs. $53.01 at the time of writing. Having traded twice its book value vs. 3-year average of 1.7x and par dividend yield compared to the broader market, Webster common and preferreds are a pass.
Disclosure: I do not have shares of any of the companies mentioned.