Published on August 1st, 2022 by Nathan Parsh
We feel that blue chip stocks are those that should be the foundation of the investor’s portfolio.
At Sure Dividend, we believe blue chip stocks are those names that have raised dividend payments to shareholders for at least a decade. This track record of dividend growth means that the company possess the business model to make annual increases regardless of the state of the economy.
A portfolio constructed of blue chip stocks can defend against market downturns as investors turn to high-quality names to protect their capital, potentially lessening the impact of a decline in value of holdings.
Because of this, we feel that blue chip stocks are among the safest dividend stocks that 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 installment of the 2022 Blue Chip Stocks in Focus series will examine Chesapeake Financial Shares, Inc. (CPKF) in-depth.
Founded in 1900 and headquartered in Virginia, Chesapeake Financial is a one-bank holding company that has a long history of operations. The company consist of 16 branch locations and provides services such as deposits to individuals and businesses, lending, wealth management, and trust and estate planning. Chesapeake Financial has a market capitalization of $123 million and generates annual revenue of close to $60 million.
Chesapeake Financial reported second quarter earnings results on July 19th, 2022. The company’s earnings totaled $4.063 million, which was a 2.4% improvement from the prior year. Looking closer, the comparable period in the previous year included $660,000 of Paycheck Protection Program fees. Excluding these fees, earnings grew 23% from the prior year. On a per-share, earnings totaled $0.86 compared to $0.82 in the second quarter of 2021.
The company’s asset quality remains very high as nonperforming assets sat at just 0.46%, down from 0.815% in the previous year. Net interest margin was a health 3.74% for the second quarter as interest rate hikes have been a material tailwind to Chesapeake Financial’s business.
Following second quarter results, we raised our expected earnings-per-share for 2022 to $3.40 from $3.30. If achieved, this would represent a more than 9% increase from the prior year as well as a new company record.
As a small community bank, Chesapeake Financial doesn’t have the reach of larger banks.
What it does have is more than 120 years of banking experience in the communities that it services. This allows for an entrenched business model that the communities are familiar with. This provides for the possibility of increased business from those community members who look to avoid the larger banks and want the more familiar feel of a smaller bank.
Chesapeake Financial also focuses on bread-and-butter banking, meaning the taking of deposits and loaning them out to individuals and businesses. This prevents the bank from entering into exotic or risky areas of finance that have gotten the large names in the industry into trouble in the past.
Chesapeake Financial benefited from PPP loans during the previous two years, which sent earnings-per-share to new records. With this program is likely to be less of a factor going forward, we estimate that earnings-per-share will grow at a rate of 2% annually through 2027. This is below the 5.1% growth rate that Chesapeake Financial has averaged since 2012, but we feel is appropriate given the quality of the company, but also the high base that earnings-per-share are starting from.
Competitive Advantages & Recession Performance
As a small bank, Chesapeake Financial doesn’t have the competitive advantages of some of its much larger industry peers.
What it does have a personal connection to the communities that it serves.
Source: 2021 Annual Report
Chesapeake Financial is consistently rated as one of the top community banks to work for as the company works to foster a strong workplace environment. Maintaining a healthy workplace environment helps prevent talent from being poached by larger competition and helps Chesapeake Financial keep its spot near the top of the community bank leaderboard.
This results in a highly motivated work force that makes connections with the customers in its community. These customers can then feel more motivated to return to the bank for services such as wealth management and estate planning. Customer satisfaction with Chesapeake Financial remains very high as a result.
A committed workforce and customers who prefer the feel of smaller banks helps to limit the impact of economic downturns for Chesapeake Financial. Below are the company earnings-per-share totals before, during, and after the last recession.
- 2006 earnings-per-share: $1.34
- 2007 earnings-per-share: $1.49 (11.2% increase)
- 2008 earnings-per-share: $1.13 (24.2% decrease)
- 2009 earnings-per-share: $1.24 (9.7% increase)
- 2010 earnings-per-share: $1.41 (13.7% increase)
- 2011 earnings-per-share: $1.81 (28.4% increase)
- 2012 earnings-per-share: $1.98 (9.4% increase)
Chesapeake Financial did decline in 2008 as the company felt the brunt of the Great Recession, but immediately began to recover the very next year. It did take the company until 2011 to establish a new high for earnings-per-share, but growth has been in a strong uptrend almost ever since.
Earnings-per-share may have declined during the 2007 to 2009 time period, but Chesapeake Financial continued to raise its dividend. For the period, shareholders saw a 20% total increase in their dividends-per-share. The company has increased its dividend for 29 consecutive years, including a 7.1% increase for the upcoming September 15th payment. The nearly three decades of increases earns Chesapeake Financial a place among the Dividend Champions.
With a low payout ratio of just 18% expected for 2022, shareholders can continue to count on annual increases. Chesapeake Financial yields 2.3%, considerably higher than the 1.6% average yield for the S&P 500 Index.
Valuation & Expected Returns
Shares of Chesapeake Financial recently traded hands at $26, resulting in a price-to-earnings ratio of 7.6 using our updated estimates for 2022.
We have a five-year target price-to-earnings ratio of 9, implying a small tailwind from multiple expansion. Reaching our target valuation by 2027 would add 3.3% to annual returns over this period of time.
Altogether, we project that Chesapeake Financial will provide annual returns of 7.5% over the next five years, stemming from a 2% earnings growth rate, a starting yield of 2.3%, and a low single-digit contribution from multiple expansion.
Chesapeake Financial may lack the size of its more well-known peers, but the company has more than a century of history in its community. The company provides essential banking services for the communities in which it operates.
The company has an impressive dividend growth streak and provides a market beating dividend yield.
We rate Chesapeake Financial as a hold due to total returns in the high single-digits, but find the qualities of the company, its business model, and dividend growth history as attractive features. On a pullback, we would be more inclined to recommend purchasing of shares in the company.
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.