US Bancorp ( USB) posted disappointing fourth-quarter results Tuesday morning. The Minneapolis-based bank earned 66 cents a share, up 5% year over year but a penny less than expectations; its $3.42 billion revenue number also missed the $3.45 billion consensus analyst estimate.

Even so, the stock ended the session fractionally higher at $35.75, up 20 cents, as investors were attracted to US Bancorp's 4.5% dividend yield. The earnings report and subsequent reaction raise a couple of questions: Are the company's best earnings behind it, or can investors still cash in from buying the shares at current levels? I'll consider those questions as I try to answer the question: Should I do it?

US Bancorp is the sixth-largest bank in the country, with $219 billion in assets and nearly 2,500 branches. This latest quarter marks the first earnings report for CEO Richard Davis, who ascended into the position last month after serving for two years as COO. He did not waste any time making a splash at his new position, either, as Davis boosted US Bancorp's quarterly dividend 21% his first day in office.

The bank, which has increased its dividend 35 consecutive years, now pays out 40 cents a share, and its current 4.5% dividend yield is one of the highest in the banking sector. The company has delivered positive earnings growth eight of the past nine years, and the consensus analyst estimate is for another 8% growth in 2007, to $2.82 a share.

While some banks' earnings have suffered because their balance sheets were not positioned for an inverted yield curve, US Bancorp derives 50% of its revenue from fee-based services.

The company also bought back 10 million shares during the fourth quarter, leaving 122 million shares remaining on its repurchase program. Through its steady dividend and stock buybacks, US Bancorp is keeping up with a December 2004 pledge to return 80% of earnings to investors. After paying the dividend, management has $1.1 billion to potentially buy back 32 million shares during 2007 in pursuit of that return strategy.

At current levels, US Bancorp trades at 12.7 times expected full-year earnings. This is a slight discount to both the company's historical average valuation and its peers, according to Bloomberg. For instance, the company delivered a 23.2% return on equity during the fourth quarter, compared with 19% for Wells Fargo ( WFC), which also posted earnings Tuesday. At the same time, Wells trades at 13.2 times expected 2007 earnings and offers just a 3.1% dividend yield.

So yes, I do believe that US Bancorp is attractive at current levels, despite Tuesday's earnings miss. The company's dividend is the largest secure payment I've come across in the industry, and management also supports the stock with an active repurchase program. The bank likely will close the valuation discount to its peers, and I believe the shares can trade over $40 by the end of the year.
David Peltier is a research associate at TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier appreciates your feedback; click here to send him an email.

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