Wednesday, November 7, 2007

Citi Group – C

I initiated a half position in C on Monday and plan on holding this name indefinitely.

“Citigroup is organized into four major business groups: Global Consumer; Markets and Banking (M&B); GlobalWealth Management; and Alternative Investments. The Citigroup Global Consumer business includes banking services, credit cards, loans and insurance. The M&B business is in about 100 countries and advises companies, governments, and institutional investors on the best way to realize their strategic objectives. The GlobalWealth Management division at Citigroup is comprised of The Citigroup Private Bank, Smith Barney (private wealth management), and Citigroup Investment Research,and serves both private and institutional clients.”

Here are my reasons for buying:
-As a general rule I’ve found that the best time to buy large multinational blue chips is when everyone else hates them.
-S&P credit rating = AA (second highest rating)
-Moodys credit rating = Aa1 (second highest rating – very little credit risk)
-Currently 45% of their revenue is generated outside of the United States and their current focus is to increase this number to 60%.
-They have the world’s largest credit card operation.
-In my opinion they are extremely well positioned to expand their international operations.

PE – 8.7X
Estimated 2007 PE – 9.7X
Estimated 2008 PE – 7.7X
Current dividend yield – 6%
5 year avg. dividend yield – 2.9%
5 year avg. dividend growth – 24.1%
3 year avg. dividend growth – 9.26%
Payout ratio – 47%
ROE – 17.9
Price/Book – 1.4X

Other Facts:
-S&P recently downgraded them from 5 stars (strong buy ) to 3 stars (hold). However, they have a 12 month $45 price target and rate them a low risk investment. From my purchase price this represents a total one year return of 26% (20% capital gains + 6% dividend). If I was an analyst I would find it hard to rate a company that I believed would return 26% in 12months with limited risk a hold…
-Argus recently reduced their 1 year target price to $55 from $60 but are maintaining a buy rating.

As I mentioned above I’ve initiated a half position in C and am going to take a wait and see approach from here. However, if the stock declines significantly from here I will be doubling down.

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

80 comments:

MG said...

I think you have the courage it takes to be a good dividend growth investor.

Middle Class Millionaire said...

Thanks MG,

because dividend growth is the plan and I'm hoping that in 2 years I'll look really smart for buying now... but I guess only time will tell.

P.S - Nice buy with BAC

telly said...

I bought C a couple weeks ago at a much less favourable price but I plan to average down with another purchase in the next few weeks.

Obviously, I think you've made a nice purchase. For a long-term hold, and at the current price and current exchange rate, I can't see you regretting this one, even within the next year much less 10-20.

Good job.

Jerry said...

Ouch, you bought too early

I bought BAC too early (last week), but I liked how it's performed the best among US financial stocks, definitely better than Citi, Merriyl, or Morgan Stanley. 5.5% Dividend

QUALITY STOCKS UNDER 5 DOLLARS said...

I would avoid banks period.

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