Dividend Growth Stock Overview: People’s United Financial, Inc.

People's United Financial operates over 400 bank branches across New England and New York State.
Photo courtesy JeepersMedia/flickr.com.

About People’s United Financial, Inc.

People’s United Financial, Inc. is a bank and financial holding company for People’s United Bank, which operates bank branches throughout New England and southeastern New York State. The company has over 400 branches across Connecticut, New York, Massachusetts, New Hampshire and Maine; included in this are nearly 150 full-service bank branches co-located in Stop & Shop supermarkets in Connecticut and New York, which hold 14% of the company’s total deposits. People’s United has nearly 5,000 full-time employees.

The company provides a variety of traditional banking services, including taking deposits, issuing loans and providing wealth management services to individual, corporate and municipal customers. Non-traditional banking services, provided through non-banking subsidiaries, include brokerage, life insurance and equipment financing services. The company’s businesses are divided across two segments: Commercial Banking and Retail Banking.

In February of this year, the company converted from a Savings & Loan holding company to a bank holding company in order to further the company’s strategic objective, which is to become a diversified commercial banking company. People’s United does not expect the change to have any material effect on operations.

People’s United has grown rapidly through acquisitions over the last 5 years, more than tripling its net income. The company’s most recent acquisition was in June 2012 when it purchased 57 branches with $324 million in deposits from RBS Citizens, N.A. It’s growth continued in 2014, with net income and assets up by over 8% to $251.7 million and $36 billion, respectively, and earnings per share were up 13.5% to 84 cents. While earnings growth has been rapid over the last 5 years, the company was initially paying out more in dividends than it was earning. This has led to very slow dividend growth over the last 5 years as People’s United reduced its payout ratio to a current 77%. More information on the company’s dividend growth history can be found below.

The company is a member of the S&P 500 index and S&P’s High Yield Dividend Aristocrats index, and trades under the ticker symbol PBCT.

As a member of the S&P 500, once People’s United has increased dividends for 25 consecutive years S&P will classify the company as an S&P Dividend Aristocrat. Given that People’s United has made a conscious effort to increase the dividend each year for 22 years straight, I expect them to continue to do so. This would put them on track to become a Dividend Aristocrat in 2018.

People’s United Financial’s Dividend and Stock Split History

People's United Dividend Growth

People’s United has increased its annual dividend by a penny a share each year since 2009.

People’s United Financial and its predecessor companies have increased dividends annually since 1993. The company usually announces dividend increases in mid-April, with the stock going ex-dividend at the end of April. The company’s last dividend increase was in April 2014, when the company raised the quarterly dividend by 1.54% to an annualized rate of 66 cents per share. The company should announce its next dividend increase in 2 – 3 weeks.

After growing its dividend rapidly through the 1990s and early 2000s, People’s United was hit hard by the financial crisis of 2007 – 2008 and since 2009 has not increased its dividend by more than 2% a year. As I noted above, this is reflected in the dividend growth rate. From 2009 – 2014, People’s United grew its dividend from 60.75 cents a share to 65.75 cents a share, for a compounded annual dividend growth rate (CADGR) of 1.59%. Longer term, the CADGR is higher but less reflective of the company’s dividend prospects. From 2004 – 2014, the company’s CADGR is 6.26% and from 1994 – 2014, the company’s CADGR is 12.20%.

People’s United and its predecessor companies have split their stock three times since beginning their record of annual dividend growth. Each split was 3-for-2; they occurred in May 1997, May 2004 and May 2005.

Over the 5 years ending on December 31, 2014, People’s United Financial stock appreciated at an annualized rate of 2.85%, from a split-adjusted $13.04 to $15.01. This significantly underperformed the 13.0% annualized return of the S&P 500 during this time.

People’s United Financial’s Direct Purchase and Dividend Reinvestment Plans

People’s United has both direct purchase and dividend reinvestment plans. The fee structure, while not the best among dividend growth companies, is not unusually burdensome for investors. When investing for the first time, there is a one-time $15 enrollment fee to establish an account. The minimum initial investment for new investors is $250; for additional investments the minimum is $100. The dividend reinvestment plan does allow for full and partial reinvestment of dividends.

While People’s United picks up all costs associated with dividend reinvestment, there is a $2 fee for each purchase of shares by automatic bank debit and a $5 fee for each purchase of shares by check; the company pays the per share fee in these cases.

When you sell your shares in People’s United, you’ll pay a transaction fee of between $15 and $25, depending on the type of sell order, plus a commission of 12 cents per share. Sale requests completed over the phone by a representative will have an additional $15 deducted from the proceeds.

Helpful Links

People’s United Financial, Inc.’s Investor Relations Website

Current quote and financial summary for People’s United Financial, Inc. (finviz.com)

Information on the direct purchase and dividend reinvestment plans for People’s United Financial, Inc.

 

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