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Hingham (HIFS) Stock Analysis

Hingham Institution for Savings (HIFS) provides various financial services to individuals and small businesses in Massachusetts. The company currently has nine branches and several ATM locations in Boston and southeastern Massachusetts. In the second quarter of 2008, the Bank opened a new branch in Norwell which has, thus far, surpassed management’s expectations with respect to deposit growth. Back in March the bank raised its quarterly dividend by 4.50%.

The board of directors has raised annual dividends for sixteen years in a row. Since the year 2000 the company has paid a special dividend at the beginning of each year. The company is not a member of the dividend achievers index possibly because its stock doesn’t generate a daily volume of over $500,000. This makes me wonder how many other decent companies are excluded from the eyes of dividend growth investors, simply because their stocks are not attractive to day-traders.

Over the past decade this dividend growth stock has delivered an annual average total return of 10.90% to its shareholders.

The company has managed to deliver a 7% average annual increase in its EPS between 2000 and 2009. The company has grown to nine locations over the years. It currently plans on expanding its headquarters, in order to accommodate future growth. The Bank’s ratios also exceeded regulatory capital requirements in both 2009 and 2008, and was considered to be well-capitalized. The company makes its money on the spread between the rates on its real estate loans and the rates on its deposits and borrowings. The net interest margin has increased by 1% to 3.30% in 2009 due to lower rates on deposits and borrowings. Incidentally, the rates on the commercial and residential mortgage loans that the company has made have dropped by only 0.70%. A notable increase from 300 thousand to 1.3 million was the company’s FDIC insurance expense. The Bank’s primary competition for deposits is other banks and credit unions in the Bank’s market area as well as the internet and mutual funds. The Bank’s ability to attract and retain deposits depends upon satisfaction of depositors’ requirements with respect to insurance, product, rate and service. Since 2005 deposits have grown from $364.5 million to $631.1 million, while loans have increased from $488.1 million to $718.2 million.
Only 22% of the company’s stock is held by institutions. This means that investors would not be competing with mutual funds for this stock. When few institutional investors are following a stock, there is an opportunity to uncover a good company and purchase it at a bargain price.
The negative is that there is little information available about the company given its market cap of $70 million. The auditor is not one of the Big 4 CPA firms, which may or may not be a major risk. Another potential red flag is a related party transaction, where Hingham paid legal fees to a law firm owned by certain directors of the Bank.

The return on equity has steadily decreased over the past decade, from a high of 17% in 2002 to current levels at 13%.

The annual dividend payment has increased by an average of 8.60% annually since 2000, which is slightly higher than the growth in EPS.

A 9% growth in dividends translates into the dividend payment doubling every 8 years. If we look at historical data, going as far back as 1994, Hingham Institution for Savings has actually managed to double its dividend payment every seven years on average.

The dividend payout ratio remained below 50% for the majority of the past decade. 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 Hingham Institution for Savings (HIFS) is trading at a Price to Earnings multiple of 9, yields 3.10% and has a dividend payout that is lower than 50%. The stock is attractively valued, and I recently initiated a position in it.

Full Disclosure: Long HIFS

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