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Regions Financial Corp.: An Undervalued Dividend Growth Play?

Published Sun, 19 May 2019 21:41:27 -0400 on Seeking Alpha

Headquartered in Birmingham, Alabama, Regions Financial Corp. (RF) provides a wide array of banking services to customers primarily in the southern and midwestern United States. Regions was founded in 1971 as the merger of three Alabama banks, and today it is the 32nd largest US bank, operating nearly 2,000 ATMs and nearly 1,500 branches. Below I’ll take a look at whether RF stock could be an attractive addition to your dividend stock portfolio.
To determine whether I would consider RF stock to be a good investment, I first want to look at a few metrics. Return on assets, price-to-earnings, and price-to-book are key metrics that I use to initially identify a stock that is potentially undervalued.
Return on assets (ROA) is a metric that I typically examine for companies within the banking industry. A bank’s ability to generate a return on its assets (your cash) is what keeps the machine churning. Typically, I look for a ROA greater than 1% for companies within the banking industry.
Price-to-earnings (P/E) is one of the best indicators of a stock’s valuation. In general, I look for a P/E below the broader market average. However, while doing research I noticed that banks are trading well below the broader market as a whole, so it would be a better comparison to examine Regions’ P/E alongside that of some of its competitors. I noted an average P/E of ~10 times earnings while analyzing larger regional banks. Therefore, I will set this as my benchmark and see if the... Read more