NEW YORK (
Bank of Hawaii
has a very strong track record of industry-leading earnings through good times and bad, and is an excellent name for long-term investors to consider.
By long term, I means an investment horizon of several years. Most coverage by analysts and the media focuses on day-to-day profit potential when picking common stocks, and analyst price targets are for 12-month periods.
When you consider investing in a bank that has achieved a return on equity exceeding 15% over the past five and a half years - exceeding 20% except in 2009 when ROE was "only" 16.42% according to SNL Financial - and has a dividend payout exceeding 4%, day-to-day price fluctuations shouldn't be your focus, although significant dips in the price may present an opportunity to build a position.
In a July 27 report published after Bank of Hawaii issued its second-quarter earnings release, Sterne Agee analyst Brett Rabatin said the shares were at the "high end of a near-term trading range." Rabatin also termed Bank of Hawaii "a great bank in
a challenging environment."
Rabatin has a neutral rating on the shares, citing "minimal loan growth prospects and low reinvestment yields," and advised "looking at this quality name on pullbacks." Well the shares have done just that, pulling back 11% since the report was published. Along with the strong earnings and dividend payout of over 4% the shares would seem to have very significant upside for long term investors.
Shares traded for 2.2 times tangible book value as of Friday's close according to SNL Financial. While that might seem expensive at a time when two thirds of banks stocks trade below book, the shares traded much higher before the credit crisis began. The shares traded for 3.5 times book at the end of 2007 and nearly 4 times book at the end of 2006.
Most analysts covering Bank of Hawaii have neutral ratings on the shares. I don't agree with them. For one thing, analysts tend to have a 12-month outlook. For investors seeking quality for a truly long-term investment, Bank of Hawaii has a proven track record for a high return on investor capital, sound decision-making and a decent dividend payout.
Bank of Hawaii is a good core holding for your portfolio, rather than a trading play.
Written by Philip van Doorn in Jupiter, Fla.
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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.