Friday, June 15, 2012

National Bankshares Stock Analysis

National Bankshares, Inc. (NKSH) operates as the bank holding company for the National Bank of Blacksburg, which provides a range of retail and commercial banking services to individuals, businesses, non-profits, and local governments in Virginia. This dividend achiever has increased dividends on its common stock for 12 years in a row. The company’s last dividend increase was in May 2012 when the Board of Directors approved a 16.70% increase to 53 cents/share.I uncovered this hidden dividend star in my weekly review of dividend increases. Over the past decade this dividend growth stock has delivered an annualized total return of 12.30% to its shareholders.

The company has managed to deliver 6.60% in annual EPS growth since 2002. Analysts expect National Bankshares to earn $2.56 per share in 2012 and $2.49 per share in 2013. In comparison National Bankshares earned $2.54/share in 2011.
 The return on equity has been declining since hitting a high of 15% in 2003, although it has been stabilizing since 2007 - 2008. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 8.20% per year over the past decade, which is higher than to the growth in EPS. The company pays semi-annual distributions to its shareholders.
An 8% growth in distributions translates into the dividend payment doubling every nine years. The current semi-annual payment is twice the amount of dividends paid 9 years ago. Between 2002 and 2004 the dividend payout ratio increased from 34% to 40%. Since 2005 however, this indicator has been flat around 40%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently, National Bankshares is attractively valued at 11.10 times earnings, yields 3.70% and has an adequately covered dividend. I would consider initiating a position in the stock subject to availability of funds.

 Full Disclosure: None

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 - Build your own Berkshire with dividend paying stocks
Searching for Hidden Dividend Stars
Hingham Institution for Savings (HIFS) Dividend Stock Analysis
The right time to buy dividend stocks

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