Citigroup (C) is a diversified financial services holding company that has operations in North America, Latin America, Asia, Europe, the Middle East, and Africa.
The company operates in two segments, Global Consumer Banking, and Institutional Clients Group .
The company offers retail services to customers through checking and savings accounts, credit cards, and lending services. To financial institutions it offers brokerage services, lending to corporations, investment banking an advisory services, and many other features.
I am bullish on the stock. (See C stock charts on TipRanks)
Steady Dividend Growth
When the housing market crashed in 2008, it sent the country into a long and deep recession known as the Great Recession. Financial institutions such as Citigroup were devastated. Citi saw its stock trade for under $1 per share and, in 2011, the company needed to execute a reverse split to stay listed on a major stock exchange.
The dividend was suspended in 2010, but reinstated in 2011, as it paid $0.03 per share that year — a pittance for investors.
Fast forward a decade, and the company is once again thriving and rewarding shareholders.
Citigroup is a solid dividend growth stock. A dividend growth stock that consistently raises its dividend so shareholders who buy and hold have higher effective yields as time passes.
During the COVID-19 pandemic, the company did not execute a dividend raise; however the dividend has been raised for each of the previous six years.
It can be expected that another dividend raise is on deck with the company once again posting positive results. The chart below shows the annual dividend paid over the last 10 years (2021 is estimated to remain as it currently stands).
A Dividend Raise Is Likely
The current dividend yield is around 2.8%, and the dividend is very safe.
Citigroup has a history of paying out around 30% of earnings per share as dividends. This dividend payout ratio was elevated during the pandemic, when EPS was reduced from $8.08 per diluted share in 2019, to just $4.74 in 2020.
The good news for shareholders is that over the last four quarters, diluted earnings per share have recovered nicely to $9.75. Citigroup is set to release Q3 2021 earnings on October 14, before market open. This could provide a clue as to when the dividend will be raised.
Enticing Valuation
Citigroup trades at an attractive price-to-earnings ratio of 7.4. Interest rates are likely to be on the rise soon due to increasing inflation.
Citi will benefit from a rising interest rate environment, as lending becomes more lucrative. The company continues to buy back shares as well, which is essentially a tax-free return of capital to shareholders.
In Q2 2021 alone, the company repurchased $2.9 billion in shares. This is nearly 2% of the current market cap. Clearly management sees value in the shares at this price.
Wall Street’s Take
Wall Street analysts are extremely bullish on C stock, with a Strong Buy consensus rating based seven unanimous Buys.
The average C price target of $88.71 implies 24% upside potential. It is important to note that investors in Citigroup are also buying for the dividend yield, and not just capital gains.
Summary on Citigroup
Citigroup has weathered what is, hopefully, the worst of the COVID-19 pandemic.
The company has a history of dividend raises over the last six years. and one is likely on the way as EPS has increased markedly.
Share buybacks have increased shareholder value, and the dividend is extremely safe for income investors. Thus, Citigroup is a value and income stock with significant upside.
Disclosure: At the time of publication, Bradley Guichard had a position in C.
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