Published on July 7th, 2021 by Bob Ciura
Grupo Aval Acciones y Valores (AVAL) is a financial services company that operates in Colombia and Central America. The stock also offers a dividend yield of nearly 5.0% at the present moment.
Grupo Aval also pays a monthly dividend, which allows shareholders to receive income on a more frequent basis than the traditional quarterly or semi-annual schedule.
There are just over 50 monthly dividend stocks in our coverage universe. You can see the complete list of monthly dividend stocks, with important financial metrics like dividend yields, price-to-earnings ratios, and payout ratios, by clicking on the link below:
Shares of Grupo Aval have declined 17% from the beginning of the year, but the stock is still up 24% in the past 12 months.
This article will discuss Grupo Aval’s business model, its prospects for growth, and whether the dividend is sustainable.
Founded in 1994, Grupo Aval offers a wide variety of financial services and products to both public and private sector customers in Colombia and Central America. The bank has a market capitalization of just over $6 billion. The Colombia-based bank provides checking and savings accounts, time deposits, cashier checks and collection services.
Grupo Aval also provides commercial loans, including general purpose loans and leases, and consumer loans, including payroll, personal and auto loans. The bank also offers pension services, document storage and payment and collection services. Lastly, Grupo Aval provides customers with investment fund advice and private banking.
Grupo Aval has a heavy presence in Colombia.
Two-thirds of net income and 64% of assets came from Colombia in the first quarter of 2021. This means that Grupo Aval’s business will almost always be directly tied to the health of its Colombia segment. A downturn in the nation’s economy would have a material impact on financial results.
Last year was difficult for the company, as the global pandemic weighed on the company’s financial results. On March 11th, 2021, Group Aval reported fourth quarter and Full Year (FY) 2020 results. Grupo Aval earned $1.33 billion in total interest income for the quarter, representing a (6.5)% decrease in the fourth quarter of 2019.
The Company saw a 63.4% increase in total interest income, from $5.39 billion to $5.58 billion for the year. Net income was up 5.4% for the fourth quarter and 6% for the year. After a big decrease in gross fee income to start the year because of COVID–19 restrictions, gross fee income recovered significantly by growing 10% in the fourth quarter from the previous quarter.
Total assets for the year ended with an increase of 15.8%. The growth in assets was mainly driven by a 12.4% year–over–year growth in total loans.The Company made $0.57 per share in earnings for the year, which is lower by (20.8)% vs. FY2019. We estimate that Grupo Aval will earn $0.61 per share for the fiscal year 2021. This will be an increase of 7% compared to FY2020.
With over US$90 billion in total assets, Grupo Aval is a leading financial institution in the regions it has a presence. The bank has the top market position in nearly every banking category in Colombia and Central America.
Grupo Aval has market leadership positions in a number of important categories in Colombia, such as the top spot in assets, deposits, corporate, and consumer lending. Grupo Aval is also the leader in credit card issuance in the nation and no other financial institution in the country has more assets under management.
The bank’s dominance in its main market cannot be overstated. For example, Grupo Aval holds nearly one out of every four vehicle loans in Colombia. The bank also has more than a quarter of all the assets under management for the entire country.
This market leadership has helped Grupo Aval to grow at a very high rate in recent years.
The bank’s net loan portfolio has increased with a compound annual growth rate of 6.7% from 2016 through 2020 while assets have increased at a rate of 9.6% over the same period of time. Deposits have increased by over 10% annually over the past five years.
This has allowed Grupo Aval to grow net income by 2.4% annually since 2016. The growth rate would have been much higher if not for a steep decline in 2020 due to the coronavirus pandemic.
Grupo Aval’s balance sheet is strong.
Source: Investor Presentation
The bank ended the most recent quarter with nearly $8.5 billion in total assets, including $590 million in cash and equivalents. Grupo Aval has $2.4 billion in long-term debt, with just over $1 billion due in 2022.
Also helping Grupo Aval’s business is that the gross domestic product of Colombia has been solid over the years.
Prior to 2020, GDP growth for Colombia had ranged from a low of 2.2% to a high of 3.6% over the past eight quarters. The country’s GDP fell by 6.8% in 2020 due to the coronavirus pandemic, but Colombia returned to positive GDP growth of 2% in the 2021 first quarter.
Based on dividend payments through June, Grupo Aval is on pace to distribute a total of roughly $0.27 in dividends per share in 2021. Using the current share price of ~$5.65, the stock offers a 4.8% dividend yield. This compares quite favorably to the average yield of 1.3% that the S&P 500 currently offers.
Grupo Aval’s dividend has fluctuated over the years, but much of this is due to currency exchange rates. We expect that dividends will continue to vary from year to year due to currency exchange. Currency risk is always an important consideration for investors when it comes to buying international dividend stocks.
That said, we believe it is likely that Grupo Aval will continue to pay a dividend going forward. We expect that Grupo Aval will earn US$0.61 per share in 2020. We expect a dividend payout ratio under 50% when using expected dividends for the year, which should make the dividend safe from a cut barring a major reduction in earnings.
Grupo Aval is not a widely followed stock in the US, but it a leading financial services company in the part of the world where it operates. The bank has the top leadership position in nearly every category of banking in Colombia and Central America.
Grupo Aval appears well managed and has a decent balance sheet, although the company faces a large maturity next year. Its financial position should allow the bank to continue to build outs its business in order to maintain its top ranking in the markets where it operates.
The share price has fallen significantly since the beginning of the year and the bank’s monthly dividends have fluctuated over the years, but the yield is quite high at nearly 5%. And the dividend looks safe using earnings estimates for the year.
Banking in general can be fraught with risks, especially banks outside the U.S., but Grupo Aval appears to be a solid investment for those with a higher tolerance for risk and a desire for monthly dividend income.