This small bank has an enviable track record of profits. Its current annual dividend yield is 3.26%, paid quarterly.
Enterprise Bancorp, Inc. (EBTC)
From Sure Dividend
Enterprise Bancorp has 25 full-service branches in the North Central region of Massachusetts and Southern New Hampshire. About half of the company’s loan portfolio is in commercial real estate and about a third is in commercial construction loans.
Enterprise Bancorp has a market cap of $263 million and is an exceptionally managed bank, which has remained profitable in every single quarter since its formation. In late July, Enterprise reported financial results for the second quarter of fiscal 2020. Net interest margin shrank from 4.0% in last year’s quarter to 3.6% but net interest income grew 13% thanks to strong loan growth. Total loans and customer deposits grew 32% and 26%, respectively, over last year’s quarter. Excluding the Paycheck Protection Program, loans grew 11%. Thanks to its strong performance, Enterprise saw its earnings-per-share decrease only -8% over last year’s quarter and is on track to approach our annual forecast. On the other hand, as the eventual impact of the pandemic is still unknown, it is impossible to forecast the earnings of this small-cap bank precisely.
Enterprise has an outstanding performance record, as it has remained profitable for 123 consecutive quarters. This is a testament to its prudent management and its focus on sustainable long-term growth. The bank has grown its earnings-per-share at a 10.8% average annual rate in the last decade and has grown its earnings-per-share in all but one year throughout this period.
Enterprise has traded at an average price-to-earnings ratio of 14.5 in the last decade. Given the small market cap of the bank, we consider its fair earnings multiple to be around 12.0. The stock is currently trading at a price-to-earnings ratio of 10.5. If it reaches our fair value estimate over the next five years, it will enjoy a 2.8% annualized gain in its returns.
Enterprise has grown its dividend for 26 consecutive years. During the last decade, the bank has grown its dividend at a 5.8% average annual rate.
The stock of Enterprise has lost -35% in about eight months due to the severe recession caused by the pandemic. However, we believe that the stock has been beaten to the extreme due to the indiscriminate sell-off of all the banks caused by the pandemic. We expect Enterprise to recover from next year and offer a 14.2% average annual return over the next five years. Despite the risks associated with small-cap stocks, such as low liquidity and increased stock price volatility during downturns, we view the sell-off as a rare investing opportunity and thus rate the stock as a buy.
Ben Reynolds and Aristofanis Papadatos, Sure Dividend Newsletter, suredividend.com, support@suredividend.com, 800-531-0465, August 14, 2020