Published on August 6th, 2022, by Felix Martinez
There is no exact definition for blue chip stocks. We define it as a stock with at least ten consecutive years of dividend increases. We believe an established track record of annual dividend increases going back at least a decade shows a company’s ability to generate steady growth and raise its dividend, even in a recession.
As a result, we feel that blue chip stocks are among the safest dividend stocks investors can buy.
With all this in mind, we created a list of 350+ blue-chip stocks, which you can download by clicking below:
This article will analyze First of Long Island Corp. (FLIC) as part of the 2022 Blue Chip Stocks In Focus series.
The First of Long Island Corporation is the holding company for The First National Bank of Long Island. This small-sized bank provides a range of financial services to consumers and small to medium-sized businesses. Its offerings include business loans, consumer loans, mortgages, savings accounts, etc. FLIC operates around 50 branches in two Long Island counties and several NYC burrows, including Queens, Brooklyn, and Manhattan. FLIC was a history of almost 100 years since being founded in 1927, and the company is headquartered in Glen Head, New York.
Source: Investor Presentation
On July 28th, 2022, the company reported the second quarter and six months results for Fiscal Year (FY)2022. Net income for the first six months of 2022 was $24.6 million, an increase of $1.9 million, or 8.4%, versus the same period last year. The increase is primarily due to growth in net interest income of $4.9 million, or 9.2%, and noninterest income of $695,000, or 12.1%, excluding 2021 securities gains. These items were partially offset by increases in the provision for credit losses of $2.8 million and income tax expense of $364,000.
Net income for the second quarter of 2022 of $12.5 million increased $1.1 million, or 9.6%, from $11.4 million earned in the same quarter of last year. The increase is mainly due to growth in net interest income of $2.8 million, or 10.3%, for substantially the same reasons discussed above concerning the six-month periods.
The Corporation’s balance sheet remains strong, with a leverage ratio of approximately 9.9%. The company repurchased 488,897 shares of common stock during the first half of 2022 for $9.8 million. The management team expects to continue common stock repurchases during 2022.
The company ROE was 12.9% and 12.4% for the three-month and six-month periods ended June 30, 2022, respectively, an increase compared to 11.0% and 11.1% for the same periods in 2021. The increases in ROE were due to higher net income for both periods and an increase in accumulated other comprehensive losses due to a significant increase in the net unrealized loss in the available-for-sale securities portfolio from higher interest rates.
The company continues to focus on strategic initiatives supporting the growth of its balance sheet and a profitable relationship banking business. Such initiatives include improving the quality of technology through continuing digital enhancements, optimizing its branch network across more extensive geography, using new branding and “CommunityFirst” focus to improve name recognition, enhancing its website and social media presence, including the promotion of FirstInvestments, and recruitment of experienced banking professionals to support our growth and technology initiatives.
The company’s earnings per share have grown consistently over the last decade, with an annual increase of 5%, though its growth rate has been uneven. Their dividend yield has grown even faster, at a 10-year average annual rate of more than 7%. We expect the company to increase future earnings at a 4% rate over the next five years.
With the interest rate increases, this should provide a tailwind for the company as it will help increase its net interest margin.
The company also has been decreasing its share count trough out the years. This has helped the company to continue to increase earnings because of the education of share count.
Source: Investor Presentation
Competitive Advantages & Recession Performance
FLIC is a small regional bank focused on New Jersey and some burrows of New York. As such, it has benefited from a growing population and a strong housing market in the active areas. One could thus say that it has a competitive advantage in terms of being focused on an attractive geographical market, although FLIC does not enjoy large-scale benefits.
Nevertheless, FLIC has solid fundamentals, including an above-average return on equity of ~11% and robust loan stability, with below-average credit charge-offs, even during the current crisis. During the Great Recession, FLIC performed better than many of its peers, proving the below-average level of risk.
You can see a rundown of First of Long Island Corporation’s earnings-per-share from 2007 to 2011 below:
- 2007 earnings-per-share of $0.67
- 2008 earnings-per-share of $0.79 (18% increase)
- 2009 earnings-per-share of $0.82 (3% increase)
- 2010 earnings-per-share of $1.02 (25% increase)
- 2011 earnings-per-share of $0.98 (4% decrease)
First of Long Island Corporation was remarkably resilient during the Great Recession. It only suffered a 4% decline in 2011 after the Great Recession, which is impressive considering that this company is in the financial industry. The company again performed well in 2020, a year in which the U.S. economy entered a recession due to the pandemic. And yet, First of Long Island Corporation continues to increase its dividend reliably each year, including a 5.3% increase in 2022.
The company has an outstanding balance sheet. The company sports a debt-to-equity ratio of 0.6 and a long-term debt-to-capital ratio of 44.1.
Valuation & Expected Returns
Over the past ten years, the company has tended to average a PE ratio of 14.5x earnings. However, we think a PE of 12x earnings is better suited for this company.
The company currently sports a PE of 9.5x 2022, with expected earnings of $2.11 per share. Thus, the company stocks look undervalued at the current price. If the stock price were to revert to a PE of 12 over the next five years, this would provide the investor with an annual rate of return of 5.4% over the next five years.
Combining the current dividend of 4.2% and an expected earnings growth of 4% over the next five years will give us a 13.6% annual return.
As you can see below, if an investor brought $100 worth of shares on January 1st, 2012, while reinvesting the dividend, the return would have been over 100%.
Source: Investor Presentation
The First of Long Island is not a large bank but is active in an attractive regional market and operates quite profitably. FLIC has not been a high-growth business in the past, but through a combination of dividends and some earnings growth, returns have still been solid. Based on our total return estimates, FLIC seems like an attractive stock right here, and its valuation is below our fair value estimate. We thus rate FLIC a buy at current prices.
The Blue Chips list is not the only way to quickly screen for stocks that regularly pay rising dividends.
- The Dividend Aristocrats: S&P 500 stocks with 25+ years of consecutive dividend increases.
- The High Yield Dividend Aristocrats List is comprised of the Dividend Aristocrats with the highest current yields.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of 44 stocks with 50+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The 20 Highest Yielding Monthly Dividend Stocks: Monthly dividend stocks with the highest current yields.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500.
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Complete List of Russell 2000 Stocks: arguably the world’s best-known benchmark for small-cap U.S. stocks.
- The Best DRIP Stocks: The top 15 Dividend Aristocrats with no-fee dividend reinvestment plans.
- The 2022 High ROIC Stocks List: The top 10 stocks with high returns on invested capital.
- The 2022 High Beta Stocks List: The 100 stocks in the S&P 500 Index with the highest beta.
- The 2022 Low Beta Stocks List: The 100 stocks in the S&P 500 Index with the lowest beta.