BB&T Rewards Shareholders: Time To Hold On To The Stock?

BB&T Corporation (NYSE:BBT) in a bid to pass on tax reform benefits to its shareholders announced 13.6% dividend hike to 37.5 cents per share and a one-time dividend. Both capital actions have been approved by the Federal Reserve.

BB&T will pay 4.5 cents per share of one-time dividend on Mar 20 to shareholders of record as of Mar 6. This is in addition to the earlier announced quarterly dividend of 33 cents per share, which will be paid on Mar 1 to shareholders of record as of Feb 9.

The bank expects the dividend payment of 37.5 cents per share to be continued in the second quarter of 2018 as well. Further, BB&T intends to request for additional capital deployments including dividend raise while submitting the 2018 capital plan to the Fed for review.

In fact these are in addition to what the company had announced in December 2017 following the passage of the revised tax act. BB&T had notified additional investments of $152 million “in its associates and communities.” These included increasing minimum pay rate to $15 per hour, one-time bonus of $2,000 to roughly 75% of its associates and a $100-million donation to its philanthropic fund.

Notably, BB&T is not the only bank that has undertaken such measures following the passage of the tax act. Several banks including Washington Federal, Inc. (NASDAQ:WAFD) , Fifth Third Bancorp (NASDAQ:FITB) and Texas Capital Bancshares, Inc. (NASDAQ:TCBI) also passed on the benefits to their employees in the form of pay rise and one-time bonus, and plan to upgrade technology.

Although for income investors, this is a great opportunity to chip in with their money but is BB&T worth a look for earning this additional dividend income? Let’s explore this Zacks Rank #3 (Hold) stock’s financial performance and fundamentals to understand its share of risks and rewards.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Concerns

Mounting non-interest expenses is a major concern for BB&T. The increase is mainly due to a rise in personnel expenses and the company’s efforts to improve digitalization. As BB&T continues to expand inorganically and consolidates branches, overall costs will likely remain elevated in the quarters ahead.

Also, the company’s ROE of 9.93% is lower than the industry average of 10.68%. This reflects that it is less efficient in utilizing shareholder funds compared with its peers.

Strengths

BB&T’s overall organic growth strategy remains impressive, driven by increase in interest rates, higher loan demand and focus on strengthening its non-interest revenue sources. The company’s projected sales growth (F1/F0) of 2.6% accounts for a continuous growth momentum. Notably, management expects 2018 revenues (tax equivalent basis) to grow 2-4% year over year.

Also, the bank is expected to deliver a strong earnings performance, indicated by its projected EPS growth of 39.8% for 2018 compared with the industry average of 25.6%.

Further, BB&T relies extensively on acquisitions to support growth. In 2016, the company acquired National Penn and Swett and Crawford, which continues to be accretive to its earnings. While the company further plans to expand its footprint in Texas and Pennsylvania through acquisitions, its key focus is to increase revenues from insurance operations.

Moreover, analysts are bullish on the stock. The Zacks Consensus Estimate for current-year earnings has been inched 1% upward over the last 30 days. The stock has rallied 17.2% over the past three months, riding on this optimistic sentiment around it. Further, shares of the company have outperformed the industry’s growth of 14.2%.

Our Take

While elevated expenses and an inferior ROE make us a little apprehensive about the stock, we still believe that it is prudent enough to hold on to BB&T stock in your portfolio for now on the back of solid earnings and sales growth prospects.

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