High Dividend 50: TrustCo Bank Corp

Published on July 5th, 2024 by Josh Arnold

High-yield stocks pay out dividends that are significantly more than market average dividends. The S&P 500’s current yield is only ~1.3%, so the bar for high-yield stocks is currently lower than it has been at other points historically.

High-yield stocks can be very helpful to shore up income after retirement. A $120,000 investment in stocks with an average dividend yield of 5% creates an average of $500 a month in dividends.

TrustCo Bank Corp is part of our ‘High Dividend 50’ series, where we cover the 50 highest yielding stocks in the Sure Analysis Research Database.

We have created a spreadsheet of stocks (and closely related REITs and MLPs, etc.) with dividend yields of 5% or more…

You can download your free full list of all securities with 5%+ yields (along with important financial metrics such as dividend yield and payout ratio) by clicking on the link below:

Next on our list of high dividend stocks to review is TrustCo Bank (TRST).

TrustCo’s dividend increase streak is just three years, owed to a three-year period from 2018 to 2020 where the same dividend was paid.

Looking forward, TrustCo not only has a high current yield, but we believe it is likely to continue to raise its payout going forward.

Business Overview

TrustCo is a holding company for TrustCo bank, which is a federal savings bank that operates from it’s Glenville, NY headquarters.

The bank offers a typical mix of savings and deposit products, as well as consumer and commercial loan products. Further, the bank has a trust business and related services.

TrustCo was founded in 1902, and has grown in the century-plus since then to 143 offices across New York, Florida, Massachusetts, and New Jersey.

The bank posted its most recent earnings on April 22nd, 2024, and results were quite strong for the first quarter. Net income came to $12.1 million, or 64 cents per share. That was four cents ahead of estimates.

Compared to the year-ago period, earnings declined by about a third, down from 93 cents per share.

Average loans were up 5.2% year-over-year, or $249 million. Average residential loans were up 3.5%, or by $147 million. Book value ended the quarter at $34.12 per share, up 5.6% from $32.31 a year ago.

We see $2.38 in earnings-per-share for this year after Q1 results, which were better than expected. Still, that would represent a sizable decline from last year’s $3.08, and from 2022’s $3.93.

Growth Prospects

Generally, TrustCo’s growth has been quite modest, and very choppy. Small banks tend to see choppy earnings as changes in interest rates, loan quality, or economic conditions can cause significant swings in profitability.

TrustCo’s focus has been on expanding profitability, meaning it has grown deposits and loans via office openings in higher growth markets, while simultaneously controlling expenses.

We see 5% earnings growth looking forward, but this is based mostly upon a reversion to the mean from a very low base for 2024.

If TrustCo achieves our estimate of $2.38 per share in earnings, that would be the lowest since 2017.

Competitive Advantages & Recession Performance

TrustCo’s competitive advantages are minimal, as is the case with other banks. They essentially all offer the same thing, so differentiation from a product and pricing perspective is low.

Where small banks like TrustCo can compete is in small markets where larger banks may not find value, and that’s the strategy TrustCo has adopted. Still, we see minimal to no competitive advantages for TrustCo given this dynamic.

As would be expected, TrustCo’s earnings struggled during the previous major economic downturn, the Great Recession of 2008-2009:

2008 earnings-per-share: $2.25
2009 earnings-per-share: $1.84
2010 earnings-per-share: $1.91

While earnings were largely maintained, and critically, the bank remained profitable, it is certainly not a recession-resistant stock. Small banks in general suffer during periods of economic weakness as loan quality tends to deteriorate during such periods.

TrustCo fits that description, and we would expect significant earnings pressure during the next downturn. We note that prudent expense management will help when the next downturn strikes, but certain factors are outside of its control.

Dividend Analysis

TrustCo’s current dividend of $1.44 per share is good for a current yield of just over 5% on the company’s $28 share price. That’s high on an absolute basis, but also for TrustCo on a relative basis considering its historic yields generally between 3% and 4%. A flagging share price in 2024 has helped boost the dividend yield to a very strong level.

With $2.38 in earnings-per-share expected for this year, the payout ratio for TrustCo is just over 60%. That’s a very sustainable level for a bank, and particularly given that we believe 2024 may mark a low for this cycle’s earnings. If that’s the case, the bank should be able to boost its payout going forward while maintaining a relatively conservative payout ratio.

We see modest growth in the dividend to a payout of $1.51 per share in five years’ time. For a purely income-focused investor, while dividend growth isn’t expected to be strong, the current yield is about four times that of the S&P 500.

Final Thoughts

TrustCo Bank has struggled over time to consistently grow earnings. It suffers from declining credit quality during times of economic duress, and growth in earnings is quite choppy.

Dividend growth has been relatively difficult to come by given this, but even so, the current share price offers a yield of more than 5%, which is unusual for TrustCo and banks in general.

While we see growth in earnings and the dividend as modest from here, we like TrustCo’s yield and believe the payout is safe for the foreseeable future.

If you are interested in finding high-quality dividend growth stocks and/or other high-yield securities and income securities, the following Sure Dividend resources will be useful:

High-Yield Individual Security Research

Other Sure Dividend Resources