Is it Time to Bank on The Bank of New York Mellon Corporation?

By Ryan Guenette - August 1, 2012 | Tickers: C, GS, NES.DL, STT, BK | 0 Comments

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The year is 1784. The British army has decided the long-fought war over the 13 colonies has yielded only significant losses in its force, and retreats back to their homeland. As the colonies comprehend their impossible victory, a battalion commander who assisted George Washington’s army in forcing the British to surrender at Yorktown, Virginia, focuses his efforts on the world of finance. Alexander Hamilton, also known famously for being a noticeable lawyer and founding father, establishes the Bank of New York. Established in 1784, the Bank of New York is only the second bank in the 13 colonies. Founded with a $500 capital investment, $11,363.64 in 2012 dollars, and a handful of employees, the Bank of New York begins to finance the building nation, known today as the United States of America.  

Now 228 years later, The Bank of New York Mellon Corporation (NYSE: BK) is a company worth $25.27 billion, and is a major player in the extensive world of finance. Since The Bank of New York and Mellon Financial Corporation merger on July 1^st, 2007, The Bank of New York Mellon Corporation has declined 48.38%, while the S&P 500 has only declined 7.75%. After this multi-year decline in the oldest bank in the United States, which has cut The Bank of New York Mellon Corporation’s company in half, is it time to bank on The Bank of New York Mellon Corporation?  

Growth Is Unsettling

In 2010, The Bank of New York Mellon Corporation reported earnings per share of $2.05. In 2011, The Bank of New York Mellon Corporation stated that earnings per share had declined $0.02 to $2.03, representing -0.98% year over year earnings per share growth. This unnerving trend of declining earnings per share is expected to continue into 2012, when the average consensus believes The Bank of New York Mellon Corporation’s earnings per share will decline to $1.92, displaying -5.42% year over year earnings per share growth. In 2013, the trend of declining earnings per share growth is set to be reversed, as the street sees The Bank of New York Mellon Corporation deriving $2.45 from its business, showcasing extreme 27.60% year over year earnings per share growth. Double digit growth is further anticipated in 2014, as the average analyst estimate predicts that The Bank of New York Mellon Corporation’s earnings per share will rise 13.47% to $2.78. The Bank of New York Mellon Corporation’s earnings per share growth is inconsistent at the beginning of the spectrum, in part because of the continued aftershocks of the global recession, but stabilizes and accelerates at an admirable pace towards the rear of the spectrum. The Bank of New York Mellon Corporation’s growth is anticipated to be derived from growth in its core businesses, managing and servicing investments. The Bank of New York Mellon Corporation is an investments company, and is heavily dependent on financial conditions, and will grow and shrink with the overall economy. One thing The Bank of New York Mellon Corporation may have going for it is the upcoming spurt of citizens that will be in need of investments services, due to the baby boomers era. The chart below presents the huge increase there will be in the elderly citizens in need of financial services in retirement.

The below chart displays The Bank of New York Mellon Corporation’s sales, operating profit, net income, net margin, and operating margin over the coming years.     

Assisting Dividend

At the moment, The Bank of New York Mellon Corporation pays out a quarterly dividend of $0.13, or an annual dividend of $0.52, which at the current price of $21.39, yields 2.43%. This dividend is up from 2010’s annual dividend of $0.36, and is further expected to grow in the future. In 2013, the street expects The Bank of New York Mellon Corporation’s annual dividend to be raised to $0.58, representing 11.54% year over year dividend growth. This trend is anticipated to continue into 2014, when the average consensus believes The Bank of New York Mellon Corporation’s dividend will rise to $0.65, displaying 12.07% year over year dividend growth. If prices remain steady, and analyst estimates are fulfilled, The Bank of New York Mellon Corporation will yield 3.05% in 2014, nearly double the 10 year treasury rate of 1.58%. All in all, The Bank of New York Mellon Corporation’s dividend is not extremely significant, but is a little something for waiting until financial conditions improve. The chart below displays The Bank of New York Mellon Corporation’s earnings per share, dividend, and rate of dividend, or the percentage of net income that is paid out in the dividend.

Is The Bank of New York Topping the Financial Markets?

Compared to some of The Bank of New York Mellon Corporation leading competitors, such as: Morgan Stanley (NYSE: MS), State Street Corporation (NYSE: STT), Goldman Sachs Group Incorporated (NYSE: GS), and Citigroup Incorporated (NYSE: C), The Bank of New York Mellon Corporation compares fairly satisfactorily.

The Bank of New York Mellon Corporation is in the middle of the road in terms of growth, while State Street tops the industry. Currently, The Bank of New York Mellon Corporation has the highest dividend, in terms of yield, but in 2014 State Street is set to have the highest dividend. On fundamental levels, all companies are relatively cheap compared to the average price to earnings ratio of 15, but Citigroup presents the most attractive ratio. When growth is taken into account in the PEG ratio, Goldman Sachs appears to be the most attractive. In the net profit margin comparison, The Bank of New York Mellon Corporation is located in the upper half, while Morgan Stanley stands out to the downside.

The Foolish Bottom Line

Recently, the financial industry has been one of the most hated industries in the world, because of the countless scandals and scams related to the financial world. The general population is more likely to strike against banks than invest in them. Despite these overwhelming facts, the fog around the financial industry may be clearing, leading to huge opportunities in certain names. The Bank of New York Mellon Corporation will benefit from the oncoming tidal wave of retirees, due to the baby boomers era. The Bank of New York Mellon Corporation possesses a sturdy dividend and is relatively fast-growing. Although I would not recommend any financial companies at the moment, The Bank of New York Mellon Corporation may offer long-term value.    

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