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Buy This Stock Before It Becomes a Dividend Aristocrat

By Dave Kovaleski - Mar 12, 2021 at 6:04AM

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This bank is knocking on the door of Aristocrat status with 23 years of dividend increases.

Income investors want consistency -- a stock that is going to deliver increasing dividends year-in and year-out. The best of these of are known as Dividend Aristocrats, S&P 500 companies that have increased their dividend each year for at least 25 years in a row.

There are only 65 stocks that currently hold this status. But there are many more that are knocking on the door. One of them is Republic Bancorp (RBCAA 0.75%), the holding company of Republic Bank, a regional bank based in Louisville, Ky. It has about 42 banking centers throughout Kentucky, Indiana, Ohio, Tennessee, and Florida -- along with free access at over 90,000 ATMs.

Republic just increased its dividend for the 23rd straight year in January. Letʻs take a look at why income investors should consider buying this stock before it becomes a Dividend Aristocrat.

Smiling man pointing to bar chart while another man observes.

Image source: Getty Images.

Republic by the numbers

Republic's stock is up roughly 25% year to date at Thursday's prices. Last year, a particularly difficult one for banks, it was down 20%, but over the past 10 years it had only one other year that it finished with a negative return -- 2017, when it was down 1.5%. Over that period, Republic stock price has an annualized return of 7.5%. That is below the S&P 500, but the consistency is what stands out, particularly for income investors.

The quarterly dividend is solid, at $0.31 per share with a yield of 2.75% -- well above the average for the banking industry (1.6%) and the S&P 500 (1.5%). Republic also has a payout ratio of 30%, meaning just 30% of its earnings go toward paying the dividend -- a very sustainable figure.

Where Republic is headed

Republic is two more annual increases away from reaching the Dividend Aristocrat status, and it is in a good position to get there. The company is coming off its most difficult year in recent history, as earnings were down 9% for the year, compared to the previous year. Much of it was due to increases in allowance for credit losses due to the hardships caused by the pandemic and lower net interest margins due to historically low interest rates.  

But Republicʻs key metrics were all up in 2020, as the bank had record deposit growth and increased loan balances, buoyed by $528 million in federal Paycheck Protection Program funds. The mortgage banking and warehouse lending businesses also had record earnings. "The story for our success in 2020 was diversity of revenue sources among our various operating segments," CEO Steve Trager said in the fourth-quarter earnings report.

Over the past five years, Republicʻs earnings have grown at a 20% clip annually. Having made it through the worst of the pandemic, Republic Bank should be in good shape to continue to generate solid earnings and increase the dividend. Its efficiency ratio at the end of the year was 58%, better than the industry average , and its credit quality is strong, with a 17.4% tier 1 capital ratio (a measure of a bank's ability to withstand surprise losses).

It is routinely cited as one of the best banks in its region for service, and it has also received commendations for its commitment to the community and as a great place to work.

Plus, Republic is a great value, despite its gains this year. It is trading at just 11.5 times earnings and it has a price-to-tangible-book-value ratio just under 1.2. If you're looking for a reliable dividend at a good price, Republic is a good buy.

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Stocks Mentioned

Republic Bancorp, Inc. Stock Quote
Republic Bancorp, Inc.
$42.89 (0.75%) $0.32

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