The investment banking world is not usually associated with the frequent and reliable payment of dividends. By definition, investment bank earnings are volatile, and the business model is susceptible to changes in intangibles, like confidence and trust. There is, however, one investment bank that currently yields a 4.33% dividend, and that bank is Credit Suisse (CS).
Founded in 1856, Credit Suisse (CS) provides companies, institutional clients and high-net-worth private clients worldwide, as well as retail clients in Switzerland, with advisory services, comprehensive solutions, and financial products. Credit Suisse (CS) is active in over 50 countries and employs more than 48,000 people from approximately 100 different nations. The company’s global headquarters is in Zurich. Shares of the company trade in Switzerland (SIX) and as American Depositary Shares (CS) in New York (NYSE).
As outlined above investment bank earnings are notoriously volatile and as a result dividends can fluctuate quite significantly. This can be seen during the carnage of 2008 where Credit Suisse (CS) dropped its annual payout to just $0.09 per share. It should be borne in mind that during that period competitors such as Bear Stearns and Lehman Brothers went under, while other rivals including Morgan Stanley (MS) made dividend payments in the region of $0.01 to $0.02.
The dividend last year came in at $1.74 per share, which is the same amount paid out in 2005. After making a big loss along with industry peers in 2008, Credit Suisse (CS) has managed to restore profitability in 2009. Earnings per share for the first quarter of 2010 came in at the same level as the first quarter of 2009, giving credibility to the theory of an economic rebound.
Credit Suisse (CS) currently yields 4.33% in dividends, and the company appears to sit on a relatively attractive valuation. The PE ratio is 8.56 times, while the price to sales is 1.64 times. Price to cash flow is 5.97 times and the company trades at 1.63 times book value.
The risks to the dividend and the earnings outlook are clear: increased government regulation of the sector, espoused by Barney Frank and Chris Dodd, is creating uncertainty in the investment banking industry. Higher regulation might restrict new business generation and increase business costs, thereby putting the dividend in danger. On the flip side, the company has fewer global competitors and handled the financial crisis better than most. It’s smaller and more nimble than companies such as Goldman Sachs (GS) and UBS (UBS), and as a result has room to grow.
The dividend is volatile and should only be considered as an attractive investment opportunity by the aggressive dividend seeking investor.
To see the BestCashCow Dividends page, click here.
Add your Comment
or use your BestCashCow account