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It is always interesting to see how our rankings of internal cash flow measures react when the market goes down instead of up. We’re looking for superior cash flows, which are what they are regardless of the direction of stock price. Such is the life of the dividend-centric value investor. One name I like is Cathay General Bancorp (CATY), says Kelley Wright, editor of Investment Quality Trends.

Cathay General Bancorp was founded in 1962 and is headquartered in Los Angeles. It operates as the holding company for Cathay Bank, which offers various commercial banking products and services to individuals, professionals, and small- to medium-sized businesses in the US.

The company offers the typical deposit and loan products at a regional bank, as well as public funds deposits and trade financing, letter of credit, forward currency spot and forward contract, and securities and insurance products.

Cathay General Bancorp's loan portfolio has grown at a compounded annual growth rate of 6.9% over the last five years, so last year’s 7.1% loan growth was in line. Management suggested the bank may see a slow down to the 5% area in the first half of 2024, however.

Cathay General caters to high-density, Asian-populated urban areas across the country, especially in California and New York where unemployment has been higher in comparison to many other regions of the US.

Higher unemployment, slower loan growth, and margins that were suppressed by higher interest rates in 2023 have pressured the stock price. But if interest rates do decline in the latter half of 2024, loan growth and margins should improve.

The ROIC, FCFY, and PVR were recently 8%, 4%, and 0.7, respectively. The Economic Book Value is $51.66 per share.

My recommended action would be to consider buying shares of Cathay General Bancorp.

About the Author

Kelley Wright entered the financial services industry in 1984 as a stock broker, first with a private investment boutique in La Jolla, and later with Dean Witter Reynolds. In 1990, he left the retail side of the industry for private portfolio management. In 2002, Mr. Wright succeeded Geraldine Weiss as the managing editor of the Investment Quality Trends newsletter, as well as the chief investment officer and portfolio manager for IQ Trends Private Client.

His commentaries have been published in Barron's, Forbes, BusinessWeek, Dow Jones MarketWatch, The Economist, and many other business and financial periodicals. Mr. Wright is an active speaker at trade shows and investment conferences, and is a frequent guest and contributor to radio and CNBC. He is the author of Dividends Still Don't Lie, which was published in February, 2010, by John Wiley & Sons, Inc.

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