Blue Chip Stocks In Focus: Community Trust Bancorp Inc.

Revealed on July thirtieth, 2022 by Nikolaos Sismanis

If one thinks of their favourite blue chip shares, the primary names that come to thoughts are normally big firms that generate tens of billions of {dollars} in income per 12 months. Whereas it’s true that typically greater firms take pleasure in a lot of aggressive benefits, together with a terrific moat and scaling economics, amongst others, the scale of an organization shouldn’t be essentially a essential issue to its high quality.

On this article, we’re Group Belief Bancorp, whose annual revenues are hardly over $225 million. For a inventory to be categorised as a blue chip one, our situation is that it numbers no less than 10 years of consecutive annual dividend will increase. We imagine that such a observe document displays an organization’s skill to generate regular development and lift its dividend, even in a recession.

With 41 years of consecutive annual dividend will increase, Group Belief Bancorp has definitely confirmed its skill to develop its dividend by means of numerous intervals of harsh financial circumstances. Thus, we think about it a real blue chip inventory regardless of its admittedly small market cap of simply $775 million.

To browse a whole bunch of high quality firms, we created an inventory of 350+ blue-chip shares which you’ll be able to obtain by clicking under:

Along with the Excel spreadsheet above, we’ll individually overview the highest 50 blue chip shares as we speak as ranked utilizing anticipated complete returns from the Certain Evaluation Analysis Database.

This installment of the 2022 Blue Chip Shares In Focus collection will analyze Group Belief Bancorp, Inc. (CTBI).

Enterprise Overview

Group Belief Bancorp is an area financial institution, working 84 department areas in 35 counties in Kentucky, Tennessee, and West Virginia. It’s the second-largest financial institution holding firm in Kentucky, with a market cap of simply $775 million at present.

The corporate engages in a broad vary of economic and private banking and belief and wealth administration actions. These embrace accepting time and demand deposits, originating loans to companies and people, offering money administration companies, issuing letters of credit score, renting secure deposit packing containers, and offering funds switch companies, amongst others.

Group Belief Bancorp operates with a $5.4 billion stability sheet. As of June thirtieth, complete shareholders’ fairness stood at $653.3 million, and belief belongings underneath administration have been $3.6 billion, together with CTB’s funding portfolio totaling $1.5 billion.

On account of its small market cap, Group Belief Bancorp doesn’t belong to the S&P 500 index, and therefore, it isn’t thought of a Dividend Aristocrat despite the fact that it has raised its dividend for 41 consecutive years.

Group Belief Bancorp’s newest outcomes demonstrated the financial institution’s potential to put up reslilent numbers even throughout a tricky buying and selling surroundings. Its Q2-2022 web curiosity revenue edged up 2.0%, due to mortgage development. The financial institution’s non-interest revenue decreased -by 7% over the prior 12 months’s quarter, however the decline was principally as a result of adjustments within the valuation of mortgage servicing rights.

Furthermore, the financial institution elevated its provision for credit score losses by $0.1 million, whereas it had recovered provisions of $4.3 million within the prior 12 months’s quarter. General, identical to within the earlier quarter, the financial institution confronted a tricky comparability over its blowout outcomes final 12 months, and thus, its earnings-per-share dipped by 15%, from $1.34 to $1.14. However, it exceeded the analysts’ consensus by $0.04. It’s essential to notice that many of the development final 12 months resulted from the reversion of provisions for mortgage losses, and therefore buyers ought to anticipate decrease earnings in 2022. Accordingly, we anticipate EPS to land near $4.40 in fiscal 2022, implying a year-over-year decline of 10.9%.

This doesn’t translate to a deterioration within the firm’s efficiency, nonetheless.

Supply: SEC filings, Writer

Progress Prospects

Excluding the document 12 months 2021, through which Group Belief Bancorp posted blowout earnings due to the reversal of mortgage loss provisions recorded in 2020, the financial institution has grown its earnings-per-share at a 4.3% common annual fee over the previous decade and at a 4.7% common annual fee over the past 5 years.

The economic system has recovered from the pandemic, and the Fed has began to lift rates of interest aggressively this 12 months. This needs to be confirmed a tailwind to Group Belief Bancorp. Nonetheless, the non-recurring declines within the tax fee of the financial institution, which fueled a terrific portion of the underside line development in 2018 and 2019, is not going to be significant development drivers anymore.

Consequently, we don’t anticipate the corporate to speed up its development sample within the upcoming years. By taking a prudent method, we anticipate Group Belief Bancorp to develop its earnings per share at a 2.0% common annual fee over the subsequent 5 years.

Concerning its dividend, Group Belief Bancorp has grown its dividend-per-share for 41 consecutive years on account of prudent capital administration and of constant concentrate on shareholder returns. The ten-year dividend-per-share compound annual development fee stands at 2.61%. This isn’t a passable development fee, and albeit, it barely counterbalances the long-term inflation common. Nonetheless, buyers can discover consolation within the rising payouts and anticipate that the dividend can continue to grow for many years to return if the financial institution retains its present prudent administration.

Supply: SEC filings, Writer

It’s additionally price noting that the dearth of extra aggressive dividend development doesn’t imply that shareholder worth creation shouldn’t be maximized. With the corporate retaining a considerable portion of earnings, it has been capable of develop shareholders’ fairness (e book worth) at a momentous fee over time.

Supply: Investor Presentation

Aggressive Benefits & Recession Efficiency

Group Belief Bancorp proved that it was effectively managed within the Nice Recession. Within the worst monetary disaster of the final 80 years, when most banks lower their dividends, this financial institution remained worthwhile and continued elevating its dividend. The COVID-19 pandemic in 2020 triggered an -8% lower within the earnings-per-share of Group Belief Bancorp. Nonetheless, this enterprise efficiency is superior to that of most different banks, due to the conservative mortgage portfolio. To supply a perspective, the financial institution has reported common web mortgage charge-offs of solely 0.02% within the final 4 quarters, additional demonstrating its general qualities.

You possibly can see a rundown of Group Belief Bancorp’s earnings-per-share from 2007 to 2011 under:

• 2007 earnings-per-share of $2.20
• 2008 earnings-per-share of $1.40
• 2009 earnings-per-share of $1.51
• 2010 earnings-per-share of $1.97
• 2011 earnings-per-share of $2.31

Whereas earnings-per-share fell by 36.4% in 2008, the corporate shortly recovered. By 2011, earnings-per-share have been effectively above the 2007 degree.

General, we imagine that Group Belief Bancorp’s dividend ought to stay secure even throughout a chronic recession. Throughout the previous 5 years, the corporate’s dividend payout ratio has averaged near 40%.

Primarily based on our anticipated earnings-per-share for fiscal 2022 and the present dividend-per-share run-rate, the payout ratio stands at exactly 40% as effectively. Regardless of the ample room to develop the dividend at a a lot quicker tempo, we imagine that the financial institution will keep the payout ratio near the present ranges as a part of its prudent technique, nonetheless.

Valuation & Anticipated Returns

Group Belief Bancorp is presently buying and selling at a price-to-earnings ratio of 9.5, which is decrease than its 10-year common price-to-earnings ratio of 12.6. Regardless of its constant profitability and general qualities, the market probably expects minimal development within the coming years, which explains the low cost. Nonetheless, we imagine that income-oriented buyers are more likely to respect the corporate’s 4.0%, particularly throughout the present shaky macroeconomic surroundings. Together with the truth that rising charges ought to profit the corporate, we imagine that the inventory may expertise valuation tailwinds to a P/E of 12.

If the price-to-earnings a number of expands from 9.5 to 12, future returns could be boosted by4.7% per 12 months over the subsequent 5 years. Mixed with our EPS & DPS development charges, in addition to the present dividend yield, we venture annualized returns may quantity to 9.8% by means of 2027.

Accordingly, we fee Group Belief Bancorp a purchase.

Closing Ideas

Group Belief Bancorp is a well-managed financial institution. It accelerated its development sample in 2018 and 2019 due to increased rates of interest and its lowered tax fee. It additionally posted document earnings final 12 months due to the reversion of provisions for mortgage losses because the economic system recovered from the pandemic. Whereas web revenue will decelerate this 12 months because of the absence of final 12 months’s development driver, fiscal 2022 ought to mark one other 12 months of wonderful backside line numbers.

The corporate additionally encompasses a wholesome payout ratio, which ought to maintain dividend funds and presumably dividend development even when earnings have been to be materially affected. Group Belief Bancorp thus qualifies as a blue chip inventory to depend on for income-oriented buyers, significantly given its distinctive dividend development document.

The Blue Chips record shouldn’t be the one solution to shortly display for shares that commonly pay rising dividends.