Surprise BK Mellon is a Growth Stock

Surprise BK Mellon is a Growth Stock

Surprisingly, the old-line trust bank BK Mellon, or Bank of New York Mellon Corp (NYSE: BK) is a growth stock.

For example, BK Mellon just reported five straight quarters of revenue growth. For instance, Stockrow gives BK Mellon a 14% revenue growth rate for the last quarter of 2019.

Furthermore, BK Mellon had a 5.42% revenue growth rate on 30 September 2019, a 6.53% revenue growth rate on 6.53% on 30 June 3019, a 7.28% revenue growth rate on 31 March 2019, and 21.73% on 31 December 2018. Thus, Bank of New York Mellon’s revenue grew for every quarter in 2019.

In detail, BK reported $5.684 billion in quarterly revenues on 31 December 2019, $5.073 billion in quarterly revenues on 30 September 2019, $5.087 billion on 30 June 2019, and $4.978 billion on 31 March 2019. Moreover, BK Mellon started 2019 with $4.986 billion in revenues on 31 December 2018.

How Much Money is BK Mellon Making?

Importantly Bank of New York Mellon is making money. In particular, BK Mellon reported a quarterly gross profit of $4.788 billion on 31 December 2019.

That gross profit rose from $3.861 billion on 30 September 2019, $3.924 billion on 30 June 2019, $3.899 billion on 31 March 2019, and $4.007 billion on 31 December 2018. Thus, Bank of New York Mellon makes around $4 billion in gross profit each quarter.

Consequently, BK Mellon reported a quarterly $1.822 billion operating income, and a quarterly common net income of $1.391 billion on 31 December 2019. Plus, Bank of New York Mellon reported $158.436 billion in cash and short-term investments on 31 December 2019.

That number was up from $149.849 billion on 30 September 2019 and $141.83 billion on 31 December 2018. Thus, BK Mellon is a cash-rich company. Moreover, it is generating more cash.

Is BK Mellon a Good Dividend Stock?

The cash makes BK Mellon (NYSE: BK) a good dividend stock. For instance, Dividend.com credits Mellon with seven years of growing dividends.

Mellon shares paid a 31₵ quarterly dividend on 24 January 2020. Moreover, each BK share delivered a dividend yield of 2.67%, an annualized payout of $1.24, and a payout ratio of 29.73% on 11 February 2020.

Therefore, I think BK Mellon is a value investment because the dividend, the revenue growth rate, and the cash give it a high margin of safety. If you want a fairly cheap and fool-proof income stock, Bank of New York Mellon is a good choice.

Given the numbers, I think Mr. Market undervalued BK Mellon at $46.48 on 11 February 2020.

What is a Trust Bank?

One reason why Mr. Market undervalues BK Mellon is that it is a trust bank. Trust banks are a poorly understood subset of banks.

Here is how the Corporate Financial Institute (CFI) defines trust banks:

“A trust bank is an organization that allows its customers to transact with each other through contracts known as trusts. The bank acts as a trustee in such transactions and transfers assets from one customer or client (known as the settlor) to another (known as the beneficiary) according to the terms of the trust agreement?

Trust banks perform an important role in trade in the economy. To explain, trust banks facilitate transactions between parties that cannot trust each other.

Trust Bank Growth Opportunities

For instance, a company in China that wants to pay a contractor in the United States could use a trust bank. The trust bank will hold the American contractor’s pay in trust for the Chinese company.

Notably, the State Street Corporation (NYSE: STT) a trust bank holds the U.S. dollars that back the Gemini Dollar (GUSD) stablecoin in trust. A stablecoin is a cryptocurrency that makes fiat currency payments to people who spend it.

Stablecoins are becoming big business. Tether the most popular stablecoin had a 24-Hour Market Volume of $44.980 million on 11 February 2020 CoinMarketCap estimates.

Thus technology is expanding the markets for trust banks’ services. They are creating new products that rely on trust banks’ every day.

If you are looking for an under-appreciated stock with a lot of growth potential, BK Mellon (NYSE: BK) is worth a look.

Originally published at https://marketmadhouse.com on February 11, 2020.

 

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