Investment Ideas: Washington Mutual
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Washington Mutual has always been a bank I liked and I’m finally deciding it’s time to get in. Here’s my biggest reasons throwing some money into Washington Mutual next week:
They pay a nice fat dividend. With the drop in price, the yield increases and Washington Mutual looks even more attractive. At $42.11 the yield on their dividend of $2.11 is 4.94%. This is basically close to what I currently get at Emigrant Direct (5.05%). Add in that they’ve been steadily increasing dividends. If the fed decides to drop interest rates even further this looks even MORE attractive as rates at Emigrant and other high yield banks will probably drop. Is this dividend sustainable? Yes. Currently the dividend cover is about 57% of earnings. I think the P/E ratio is less relevant because of the dividend payout. The dividend and its yield is what ultimately props up the price. You aren’t always necessarily buying for future earnings, but for the yield.
Sustainable dividend + Possible future dividend increase = winner in my book.
Every dividend increase will increase the yield, which will definitely go alongside with an increase in price to correspond with that yield.
Possibility of capital + dividend gains? I already set the buy order for next week on Tuesday for my sharebuilder account.
Washington Mutual is a rapidly expanding bank. The problem I do see is that they are too focused on the consumer and earnings quality is low, as compared to my other investment in Bank of America.
My strategy right now is to build a portfolio of steady dividend paying companies that will most likely increase their dividend over the years. The yield will steadily increase over time and hopefully I’ll have a small sizable income stream in 15 years. Dividends are re-invested automatically also.
Note: As with any investment, please do your own research before investing your own money. This is simply a quick look on why I find WaMu attractive right now.
3 Responses to “Investment Ideas: Washington Mutual”
I like the WaMU dividend too, but don’t like their growth rates or fundamentals. I’d rather get into Wells Fargo(WFC) and here’s why. WaMu has no business increasing their dividend when YoY earnings are falling. Year over Year Earnings is a strong indicator of growth, and WaMu’s have declined 3%, 17%, and 17% quarterly for FY 06. Why increase the dividend when earnings are declining? maybe to fool investors. WaMu’s net 5 year net income and sales averages are below the industry average, but their dividend exceeds by 7%. They have struggled to grow sales, so have instead raised their dividend .Lastingly, their 4th quarter EPS trend is falling from $1.02 to $0.96. And the market is swayed more by earnings estimates than anything.
Now, take Wells Fargo. First off, Yr. over Yr. EPS have grown at least 9% the last 3 quarters. Also, its current P/E of 15 is near the 5 year low, so it’s very cheap. Lastly, Wells Fargo 5 year sales growth is nearly double the industry average5 year sales growth. Whoa! they are turning big bucks over at WFC. Therefore, I’m bullish on WM because I’m a fundamentals guy. The numbers ain’t there for Washington Mutual.
By TJP on Oct 23, 2006
typo above: I meant bearish on WM. I’m bullish on WFC.
By tjp on Oct 23, 2006
YOY earnings are falling for WaMu because they are more focussed on regulations than on their business. From personal experience it is clear that they leave no options for their staff to provide customer satisfaction even when the business case is overwhelming. This MUST lead to lost business, hence earnings problems.
By Anonymous on Nov 2, 2006