Stock Analysis: Community Trust Bank Corp. (CTBI)

This article originally appeared on The DIV-Net November 9, 2009.

Linked here is a detailed quantitative analysis of Community Trust Bank Corp. (CTBI). Below are some highlights from the above linked analysis:

Company Description: Community Trust Bank Corp. owns and operates Community Trust Bank, Inc. of Pikeville, KY, which provides commercial banking services in Kentucky and West Virginia; and a trust company.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
   
2. 20-Year DCF Price
   
3. Avg. P/E Price
   
4. Graham Number
   

CTBI is trading at a discount to 1.), 3.) and 4.) above. The stock is trading at a 6.2% discount to its calculated fair value of $24.99. CTBI earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
   
2. Debt To Total Capital
   
3. Key Metrics
   
4. Dividend Growth Rate
   
5. Years of Div. Growth
   
6. Rolling 4-yr Div. > 15%
   

CTBI earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years, and another Star was earned as a result of its most recent Debt to Total Capital being less than 45%. The stock earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1950 and has increased its dividend payments for 29 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
   
2. Years to > MMA
   

CTBI earned a Star in this section for its NPV MMA Diff. of the $830. This amount is in excess of the $600 target I look for in a stock that has increased dividends as long as CTBI has. The stock's current yield of 5.12% exceeds the 3.9% estimated 20-year average MMA rate.

Other: CTBI is a member of the Broad Dividend Achievers™ Index.

Conclusion: CTBI earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks CTBI as a 5 Star-Strong Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $25.85 before CTBI's NPV MMA Differential decreased to the $600 that I like to see for a stock with 29 years of consecutive dividend increases. At that price the stock would yield 4.64%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $600 NPV MMA Differential, the calculated rate is 1.5%. This dividend growth rate is less than the 2.6% used in this analysis, thus providing a margin of safety. CTBI has a risk rating of 1.25 which classifies it as a low risk stock.

CTBI is an interesting stock. Its debt position and cash flow are excellent. Though revenue and earnings were down in 2008, free cash flow was up. On a trailing twelve month basis most metrics have improved since 2008. Although the stock is trading below my buy price of $24.99, I will wait for CTBI's next dividend increase (scheduled for December) before deciding to buy or not. For additional information, including the stock's dividend history, please refer to its data page.

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