Top picks 2013: M&T Bank Corp.

This is a conservative financial sector play that even Warren Buffett is banking on.

By TheStockAdvisors Dec 28, 2012 9:40AM
John Foxx Stockbyte Getty ImagesBy Jack Adamo, Insiders Plus

Our top pick for 2013 for more conservative investors is a stock everyone can feel safe about owing, without sacrificing above-market returns and a steady, substantial dividend.

M&T Bank Corp. (MTB) is a financial holding company headquartered in Buffalo, New York. M&T has been profitable in each and every quarter for the last 37 years. Indeed, it is the only major American bank that didn't cut its dividend in the 2008-2009 period.

Dividend growth has been nil since 2007 while it integrated acquisitions of banks it bought at fire sale prices during the banking crisis, but for the prior five years, dividend growth was a spectacular 22.9% per annum, compounded.

Third quarter earnings clearly showed the benefits of the acquisitions, so I don't mind the temporary stall in dividend growth.

The current yield on the shares is 2.8%, but there's a chance it will break the 3% barrier on a pullback, if the market continues to struggle.

Here's a partial list of M&T's great Q3 results:
  • Average core deposits were up 13% compared to last year's third quarter.
  • Fully diluted earnings per share were $2.17 up 64% from 2011.
  • Earnings rose 27% just from Q2 to Q3 2012.
  • Average return on equity was 21.5%. Warren Buffett likes stocks with an ROE above 15%. This is comfortably above that mark, which is probably why Buffett owns so much M&T stock.
  • Net interest margin expanded during the third quarter, increasing to 3.77% from 3.74% in Q2. These are both excellent numbers, particularly in the current low interest rate environment.
As for the balance sheet, loans grew at an annualized 10% rate. This runs circles around the other big banks. M&T's write-offs and non-performing loans, which were already among the lowest in the industry, continued to improve.

All this is what happens when good old-fashioned, smart, responsible bankers run a company for the benefit of its shareholders. Goldman Sachs (GS), Morgan Stanley (MS) and JP Morgan (JPM) should take a lesson from this.

Super bank analyst Meredith Whitney and Bloomberg economist Tom Keene both say that M&T is the best run large American bank. I agree. M&T Bank Corp. is a buy up to $104.

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