Big Dividend, Bad Bank
Patrick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A friend recently put me onto Park National (NYSEMKT: PRK). It has been on a nice run lately, up 15% since November. At first glance, the runup would seem to be justified. It has managed to rid itself of the money-losing Vision Bank, and announced that it's improved earnings 30% over 2010. And with a dividend of over 5% and a profit margin of over 17%, it fits my personal investing strategy nicely.
So if it's such a nice fit to my investment style, why didn't my screens catch it? Let's compare PRK to its fellow Buckeye banks (also mentioned in the second link above), KeyCorp (NYSE: KEY) and FirstMerit Corp (NASDAQ: FMER) to see what I missed, if anything.
| PRK | KEY | FMER | |
| Dividend Yield | 5.4% | 1.5% | 4.0% |
| Profit Margin | 17.3% | 19.8% | 15.7% |
| Payout Ratio | 87.0% | 11.0% | 58.0% |
| Price/Book | 1.6 | 0.8 | 1.1 |
Source: The Motley Fool
Coming in first in yield and second in profit margin, PRK would indeed have been at the top of my list, had I applied my usual sort routine to a screen of Ohio-based banks. My routine is a little unusual in that it uses yield as a measure of cheapness, but that measure is only reasonable if the yield is sustainable.
However, with a payout ratio of 87%, the dividend would have to be among the first things to go should PRK hit any snags. High-yielders like this count on the dividend to set a floor on the stock price, but this floor seems to have a pretty weak foundation.
In addition, PRK's price/book is over 1.6, pretty steep when compared to its compadres. Another price support, another corner of the foundation, that seems shaky.
For those that bought into PRK before the good news started rolling in, good for you! Now that the news is here, this value investor has to look at the rally as an exit point, not an entry.
So why not KEY? They seem to be making a lot of money. They're not giving it to the shareholders. As the owners of the company, they deserve a bigger cut, a bigger dividend, than KEY is paying.
Why not FMER? Not first in profit, not first in dividend, not first in anything?. I'm not at all surprised never to have heard of them before researching this article.
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