Citigroup's Dividend Needs a Boost

NEW YORK (TheStreet) -- There are high expectations for Citigroup(C) as it reports fourth-quarter earnings on Tuesday, with Wall Street focusing on whether the bank's growth plan can lead to a dividend boost or share buyback.

Citigroup CEO Vikram Pandit

Citigroup is expected to earn 50 cents a share, putting its 2011 EPS at $3.83, reflecting 9% earnings growth in 2011, according to expectations compiled by Zacks . Nevertheless, revenue in the quarter is expected to grow just 1% to $18.5 billion, making an expected $79.7 billion overall 2011 revenue and 8% below last years' levels, according to ThompsonReuters. The forecasts indicate that Citigroup will post its most profitable year since 2006.

Higher profit expectations and slowing revenue reflects Citigroup's multi-year strategy to trim risky loss-leading U.S. businesses in order to invest in higher margin emerging market businesses. The bulk of Citigroup's revenue still comes from developed markets, with a full 37% of sales coming from North America, as of the third quarter. In profitability, Citigroup has already crossed the Rubicon. Emerging markets accounted for 55% of the $12.4 billion in profit at core Citigroup, nine months into 2011. The percentage rises, when adding the banks loss-making CitiHoldings unit.

Look for that shift to continue in the fourth quarter, especially in Citigroup's increasingly profitable Consumer Banking unit, which drives roughly 50% of overall profits. Citigroup has earned 80% of $5.4 billion in overall Consumer Banking profit from emerging markets. Continued emerging market growth in fourth quarter earnings could bode well for 2012 earnings and dividend expectations.

Sandler O'Neill analyst Jeffrey Harte calls Citi his large-cap pick for 2012, highlighting non-European international growth, dividend prospects and smallish exposure to U.S. real estate as key drivers. "[W]e do not expect [Citigroup's] current valuation discount to persist," writes Harte in a January note, citing non-U.S. diversification and share prices valued at just 60% of tangible book value as other signs of value. Harte gives a "Buy" rating and a price target of $55 to Citi shares.

Currently, 21 analysts polled by Bloomberg give Citigroup an average price target of $42.37 a share. For more on Citigroup's shares, see 19 S&P 500 laggards that could be leaders in 2012 .