Dividend stocks can be a great source of income for retirees. However, all investors should consider dividend stocks as part of a balanced portfolio. According to a report by Principal Street Partners, from 1989 through 2018, dividend-paying stocks generated an average return of 11.6% (when dividends were reinvested), compared to 8.3% for non-dividend paying stocks, which returned 8.3%. Not only do dividend payers provide larger returns, but they also experience 35% less volatility.
One reliable dividend stock that flies under the radar is United Bankshares (UBSI -1.51%). The bank has a history of increasing its dividend payout -- a feat it has accomplished for 47 years straight. You won't find it on a list of Dividend Aristocrats, because it's not a member of the S&P 500; as a result, the stock can get overlooked by investors. Read on to make sure you don't miss out.
Buying up other banks to power its growth
United Bankshares is a regional bank with over 200 offices spread across the mid-Atlantic and southeastern metropolitan areas in the U.S. The bank has a strong footprint across these regions. In terms of total deposits, it ranks No. 2 in West Virginia, with $5.3 billion in deposits. It's also the No. 7 bank in the Washington, D.C., area and the No. 1 regional bank in the area.
It has a diverse portfolio of loans, including loans to commercial businesses and consumers. Residential mortgage loans make up 14%, 8% are commercial real estate, and 7% are consumer auto loans. Deferred loans show that this portfolio is solid, with only 0.4% of commercial loans deferred while 0.1% of consumer loans are deferred.
The bank does particularly well by expanding through acquisitions and growing its assets and revenues. It has become skilled at buying other regional banks and incorporating them into its own business. Since 1982, United Bankshares has completed 33 acquisitions.
Image source: Getty Images.
Last year it closed on an acquisition of Carolina Financial, giving it a footprint in the fast-growing Carolina region of the U.S., ranking it as the No. 10 largest bank in South Carolina and No. 17 largest in North Carolina based on total deposits.
This year it announced the acquisition of Community Bankers Trust Corporation, which recently closed at the beginning of December. This acquisition helps build up its presence in Washington D.C. while also building a footprint in Baltimore and other regions in Virginia. The bank likes these locations because the median household income is above the national average. Also, major companies like Microsoft, Meta Platforms, Alphabet, and Amazon are expanding their presence in the region, so the bank hopes that expansion will drive population growth and increase banking customers.
United Bankshares is a well-oiled machine
United Bankshares has maintained a solid financial position while expanding its footprint. The company's efficiency ratio in the third quarter was a solid 57%. Efficiency ratio is a vital metric for analyzing bank stocks because it can tell you how efficiently banks write loans (a lower ratio is better). This metric also tells you how much of a bank's net revenue is available to handle future loan losses, pay taxes, and distribute to shareholders via dividends and stock buybacks.
United Bankshares has outperformed its peers for years on this metric. From 2007 through 2020, its efficiency ratio of 53.4% beat its peers, which had an average efficiency ratio of 65.8% during the same time.
Image source: UBSI June 2021 Investor Presentation.
Raising dividend payouts for nearly 50 years
United Bankshares has been a stellar long-term performer regarding dividend payments. The bank has increased its dividend payout for 47 consecutive years, which would put it in the Dividend Aristocrats club of stocks if it was in the S&P 500 index.
It is a stable bank that can perform well during slow economic times and rewards investors with an attractive dividend yield of 4.1% at Tuesday's closing price -- a yield in line with its average yield since 1990. The stock has been a solid performer in various markets and performed well despite the great financial crisis back in 2008 wreaking havoc on markets.
One good metric to keep an eye on for dividend payers is the payout ratio. The payout ratio tells you what percent of a company's earnings are paid in the form of dividends. Ratios above 100% mean a company is paying out more than it earns, an unsustainable trend in the long run. United Bankshares' payout ratio jumped in 2010 to over 80% following the financial crisis -- a testament to its commitment to increasing its dividend payout. Today the payout ratio is a more manageable 47%, a positive sign that the bank can maintain and grow its dividend.
For these reasons, United Bankshares is a solid dividend stock you can trust as part of a well-diversified portfolio.
