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Dividend Aristocrat

In this video, Chuck Carnevale, co-founder of FAST Graphs, aka Mr. Valuation discusses Dividend Aristocrat Community Financial System Inc. (CBU) as a strong investment candidate for retired or income-focused investors. CBU is a Dividend Aristocrat that has increased its dividend for 32 consecutive years. Chuck emphasizes that such income-generating stocks can serve as a hedge against inflation by providing growing dividends over time, helping retirees maintain their standard of living.

CBU is a moderately cyclical bank with steady earnings and strong dividend coverage. Though not a fast grower, it has maintained profitability through various economic cycles, including the 2008 financial crisis. The current dividend yield is 3.53%, supported by an earnings yield of 7.1% and a low debt-to-capital ratio of 25.7%. The payout ratio is conservative, around 45–50%, and both operating and free cash flows comfortably cover the dividend.

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While the company’s historical growth has been modest, analysts project a significant uptick in earnings over the next two years—roughly 2.5x their typical rate—due to catalysts like the acquisition of seven Santander branches, improved net interest margins, and branch expansion into growth markets. Carnevale cautions that these forecasts, while optimistic, carry moderate reliability due to the small number of analysts covering the stock.

Valuation is central to Chuck’s thesis. Historically, when CBU became overvalued, it led to several years of stagnant returns, despite dividend payments. However, at the current P/E of 14.07, the stock trades slightly below its historical norm of 15–16x earnings, presenting a margin of safety and potential upside. If CBU grows earnings as forecast and reverts to a normal valuation, investors could earn annualized returns of 14%–33% through 2026.

Importantly, Chuck distinguishes this as a steady income investment, not a speculative growth play. He highlights how FAST Graphs’ “yield on cost” projections show increasing income each year, potentially surpassing a 6.5% yield on original cost over time.

He concludes that CBU is a solid building block for an income-focused portfolio—especially when blended with higher-yield or faster-growing stocks. The company’s strong fundamentals, consistent dividend growth, and attractive current valuation make it compelling for long-term investors seeking stability and rising income.

Video Length: 00:13:57

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