Posted on July 7th, 2021 by Bob Ciura
Grupo Aval Acciones y Valores (AVAL) is a financial services company operating in Colombia and Central America. In addition, the share currently offers a dividend yield of just under 5.0%.
Grupo Aval also pays a monthly dividend, which enables shareholders to receive income more often than the traditional quarterly or semi-annual schedule.
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Grupo Aval’s shares are down 17% since the start of the year, but the stock is still up 24% over the past 12 months.
This article discusses Grupo Aval’s business model, its growth prospects and the sustainability of the dividend.
Founded in 1994, Grupo Aval offers clients in the public and private sectors in Colombia and Central America a wide range of financial services and products. The bank has a market capitalization of just over $ 6 billion. The Colombia-based bank offers current and savings accounts, time deposits, cashier’s checks and debt collection services.
Grupo Aval also offers commercial loans, including general loans and leases, as well as consumer loans, including wage, personal and auto loans. The bank also provides retirement services, document retention, and payment and collection services. Finally, Grupo Aval offers clients advice on investment funds and private banking.
Grupo Aval has a strong presence in Colombia.
Source: Investor Presentation
Two-thirds of net income and 64% of assets came from Colombia in the first quarter of 2021. This means that Grupo Aval’s business will almost always be directly linked to the health of the Colombia segment. A downturn in the national economy would have a significant impact on financial results.
The past year has been difficult for the company as the global pandemic weighed on the company’s financial results. On March 11, 2021, Group Aval released its fourth quarter and full year (FY) 2020 results. Grupo Aval earned $ 1.33 Billions in totall Interest income for the quarter, a decrease of (6.5)% in the fourth quarter of 2019.
The The company saw total interest income increased 63.4% from $ 5.39 billion to $ 5.58 billion for the year. Net income rose 5.4% in the fourth quarter and 6% over the year. After a sharp drop in the gross fee Income at the beginning of the year due to COVID–19 restrictions, gross fee income rebounded significantly, increasing 10% quarter over quarter in the fourth quarter.
Total assets for the year closed with one Increase of 15.8%. Asset growth was mainly driven by one year of 12.4%–over–Annual growth in total credit.The company had annual earnings of $ 0.57 per share, which is (20.8) lower.% vs. FY2019. We appreciate that Grupo Aval will earn $ 0.61 per share for fiscal 2021. This is an increase of 7% compared to fiscal 2020.
With total assets of over $ 90 billion, Grupo Aval is a leading financial institution in the regions in which it operates. In Colombia and Central America, the bank holds the top position in the market in almost all banking categories.
Grupo Aval holds market leadership positions in a number of key categories in Colombia, such as the top position in assets, deposits, corporate and consumer credit. Grupo Aval is also the leading credit card provider in the country and no other financial institution in the country has more assets under management.
The bank’s dominance in its main market cannot be overestimated. For example, Grupo Aval holds almost one in four car loans in Colombia. In addition, the bank manages more than a quarter of all assets under management for the whole country.
This market leadership has enabled Grupo Aval to achieve very high growth in recent years.
The bank’s net loan portfolio grew at an average annual growth rate of 6.7% from 2016 to 2020, while assets grew 9.6% over the same period. Deposits have grown by over 10% annually for the past five years.
As a result, Grupo Aval has increased its net profit by 2.4% annually since 2016. The growth rate would have been much higher without a sharp drop in 2020 due to the coronavirus pandemic.
Grupo Aval’s balance sheet is strong.
Source: Investor Presentation
The bank ended the last quarter with total assets of nearly $ 8.5 billion, including $ 590 million in cash and equivalents. Grupo Aval has $ 2.4 billion in long-term debt with just over $ 1 billion due in 2022.
Colombia’s gross domestic product has also been solid for Grupo Aval’s business over the years.
Prior to 2020, Colombia’s GDP growth ranged from a low of 2.2% to a high of 3.6% in the last eight quarters. The country’s GDP fell 6.8% in 2020 due to the coronavirus pandemic, but Colombia returned to positive GDP growth of 2% in the first quarter of 2021.
Based on dividend payments through June, Grupo Aval is well on its way to paying a total of around $ 0.27 in dividends per share in 2021. At a current share price of ~ $ 5.65, the stock offers a dividend yield of 4.8%. This compares to the 1.3% average return that the S&P 500 is currently offering.
Grupo Aval’s dividend has fluctuated over the years, but much of it is due to exchange rates. We assume that the dividends will continue to fluctuate from year to year due to the exchange rate. Currency risk is always an important consideration for investors when it comes to buying international dividend stocks.
However, we think it is likely that Grupo Aval will continue to pay a dividend in the future. We expect Grupo Aval to make $ 0.61 per share in 2020. We expect a dividend payout ratio of less than 50% when using the expected dividends for the year, which should protect the dividend from being cut unless major profit cuts are made.
Grupo Aval is not a widespread stock in the US, but is a leading financial services company in the part of the world it operates. The bank holds the leading position in almost all banking categories in Colombia and Central America.
Grupo Aval appears well managed and has a decent balance sheet, although the company faces a big maturity next year. Your financial condition should allow the bank to grow its business in order to maintain its leadership position in the markets in which it operates.
The share price has fallen significantly since the beginning of the year and the bank’s monthly dividends have fluctuated over the years, but the yield is quite high at just under 5%. And the dividend looks safe from earnings estimates for the year.
Banks in general can be risky, especially banks outside of the US, but Grupo Aval seems like a solid investment for those who are more risk tolerant and want monthly dividend income.
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