Buy BB&T Corporation (BBT) Stock for the Dividend, Hold It for the Growth

There's a lot more growth in BBT stock than people give it credit for

We are in a market where 55% of all mid- and large-cap stocks have crowded up within 10% of their 52-week highs, if not record levels. But even if there aren’t a lot of screaming once-in-a-generation bargains available right now, there’s always an interesting place to park your cash.

Buy BB&T Corporation (BBT) Stock for the Dividend, Hold It for the Growth

One of the most attractive investments I’m seeing in the financial sector is the aggressively expanding regional bank BB&T Corporation (NYSE:BBT), which combines a healthy near-term dividend with strong underlying growth.

Let’s start with the dividend. The company currently pays shareholders $1.20 per share a year and last year management ramped up the dividend by 10% before the August payout, so now’s the time to catch an increase if it’s coming — and with the Federal Reserve handing banks a windfall with every rate hike, the odds look good.

While it’s too late to lock in that 4.1% yield from last year, at current prices we can still guarantee about 2.9% as a base, which puts BBT stock in the top 15% of the regional banks in terms of yield.

That said, it’s gotten a little hard to consider BBT a true regional bank thanks to its aggressive mergers and acquisitions (M&A) bringing the North Carolina brand as far west as Texas and as far north as Pennsylvania.

The company is in 15 states now, and in the process of paying for market share fueled close to 7% earnings growth last year when most of the big money centers flatlined at best.

Now growth is where this stock gets really interesting. While most of the regional banks are riding the Fed wave to glory, a reporting glitch keeps BBT off a lot of screens, which is where the real opportunity emerges. On an operating basis, BBT earned a solid 74 cents per share last quarter, which feeds into a year-over-year growth ramp of roughly 11% for the current fiscal year.

That’s easily good enough to keep this company in the top half of the regional banks, not to mention reflect growth faster than the market as a whole. However, several data services reported the less-widely-followed number BBT posted on a generally accepted accounting principles (GAAP) basis, which supports 1%-2% growth in the current year and conceals this particular ticker from growth-oriented investors.

However you want to slice it, there’s a lot more growth here than people see. Either we’re building the 74 cents EPS back into the 2017 math and looking at 11% growth or keeping the GAAP number, in which case BBT is on track to expand its earnings by an even faster rate of 22% over the next 12 months because the trailing base is that much lower.

Choose a model, but on the one hand, at a maximum of 15 times current earnings, the near future has plenty of room to discount the multiples either way.

On the other hand, the near term could easily give BBT stock an accelerated payday without stretching historical valuations one bit. This was a $49.54 stock back in March before the reporting controversy hid its true potential.

Wall Street is currently willing to split the difference, maintaining a $45 target on the shares. Add the dividend, and the possibility that management will find another tempting acquisition to raise the ramp, and it’s no surprise this is one of my favorite banks to invest in right now.

Hilary Kramer is the editor of GameChangersBreakout StocksHigh Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.

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