The Time to Buy This Little-Known Dividend Stock Has Finally Come

Giant corporations take up most of the financial media's time. That's unfortunate, because this little-known dividend stock has averaged total returns of 16.8% a year over the last 12 years.
By Ben Reynolds ,

Giant corporations seem to get all the financial media attention. I'm guilty of this, too.

I tend to look for ultra-high quality dividend paying businesses. Companies like Coca-Cola, Procter & Gamble, and Johnson & Johnson are all great businesses with long streaks of raising dividends. They are also mega-cap stocks. The smallest of those three (Coca-Cola) has a market cap of $184 billion. There's certainly nothing wrong with investing in great, extremely established businesses, but not all great businesses are gigantic.

Some great businesses with long dividend histories have flown under the radar of dividend investors for too long.

Here's a company that has a market cap of just $537 million, making it just a fraction of the size of most other businesses that have offered steady dividend increases. Let's get to know it better.

Get To Know Computer Services International

Computer Services International (CSVI) was founded in 1965 and has paid increasing dividends for an amazing 44 consecutive years.

The company provides several services for banks including:

  • Document services
  • Payment processing
  • Core bank processing
  • Regulatory compliance

No doubt, Computer Services International operates in a boring industry. Handling document, payment, compliance, and processing services for banks is not flashy -- but it doesn't have to be.

Computer Services International's stock returns speak for themselves. The company has generated total returns of 16.8% a year over the last 12 years for shareholders. The company's long dividend streak and excellent total returns speak to Computer Services Interantional's strong competitive advantage.

The company's competitive advantage stems from its trusted reputation and full-service offerings to banks. Computer Services International may be small compared to other dividend stocks, but it is one of the largest players in the regional bank services market. The company continues to make acquisitions in the highly fragmented regional bank service industry.

CSVI

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YCharts

Safety in a Turbulent Industry

The banking industry is known for its turbulence. The financial crisis of 2009 wiped out over-leveraged institutions.

You'd think that Computer Services International would see steep earnings declines during financial crises, but that's not the case.

Computer Services posted excellent results through the Great Recession of 2007 to 2009. The company's earnings per share grew each year through this difficult time -- even while the financial sector suffered. The company's services are vital to its customers, even during recessions.

Historical & Future Growth

Computer Services has grown its earnings per share at 9.8% a year over the last decade. Dividends have grown even faster, at 15.4% a year over the same time period.

Computer Services uses its stable cash flows to repurchase shares and pay out increasing dividends to its shareholders.

The company has a long growth runway ahead as it slowly consolidates the regional bank services industry. The company regularly makes small bolt-on acquisitions that add to organic growth.

The industry has very high switching costs. Once a company gets a customer bank to use its services, it requires significant effort on the part of the bank to switch to a new provider. High switching costs help telecommunications companies like AT&T and Verizon to have low customer cancellations. It is even more difficult for banks using the full host of Computer Services' products to switch, resulting in very long customer relationships.

Valuation

Computer Services International is currently trading for a price-to-earnings ratio of 18.2.

That's a fairly low price-to-earnings ratio considering its solid growth prospects, stability, and shareholder friendly management. In addition, the company's stock is currently paying a 2.6% dividend yield.

Computer Services International is an overlooked stock that makes a compelling purchase for investors looking for a way to get exposure to the regional banking industry without exposing oneself to the ups-and-downs associated with that industry.

The company's combination of a below-average price-to-earnings ratio, solid growth prospects, recession-resistance, and above-average dividend yield make Computer Services International a Top 10 stock using The 8 Rules of Dividend Investing.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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