Thursday, June 5, 2008

Commerce Bancshares (CBSH) Dividend Analysis

Commerce Bancshares, Inc., through its subsidiaries, provides various banking services to individuals and businesses. It operates in three segments: Consumer, Commercial, and Money Management.

The company is not a dividend aristocrat but a dividend champion. In fact, this stock never crossed my radar, untill I found about the dividend champions list. The company has been increasing its dividends for the past 40 consecutive years. Over the past 10 years the stock has delivered an average total return of 7.20% annually to its loyal shareholders. In addition, the company has paid a generous 5% stock dividend ever since 1996.

Commerce Bancshareshas managed to deliver a 6.80% average annual increase in its EPS since 1998. It has also managed to buy 3% of its stock back on average every year over our study period.

The ROE has been in a 13% -16% range for our study period, which is also an impressive number.

Annual dividend payments have increased over the past 10 years by an average of 10% annually, which is above the growth in EPS. A 10% growth in dividends translates into the dividend payment doubling every 7 years. If we look at historical data, going as far back as 1986, CBSH has indeed managed to double its dividend payments every seven years.

If we invested $100,000 in CBSH on December 31, 1997 we would have bought 2214 shares. Your first quarterly check would have been $188.15 in early 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly payment would have risen to $974.75 by November 2007. For a period of 10 years, your quarterly dividend has increased by 180 %. If you reinvested it though, your quarterly dividend income would have increased by 418%. The significant increase in reinvested dividend income comes from dividend growth, as well as the 5% stock dividend which was paid each November since 1996.

I also like the fact that the company’s dividend payout has not exceeded 50% over the past 10 years in addition to the low P/E ratio which is less than 14 and the above average dividend yield of 2.30%.

Full Disclosure: I do not own any shares of CBSH
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