Citigroup, Reverse Split and Dividend
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What do you need to know about Citigroup?
Citigroup was one of the hardest hit of the major money-center banks during the recession. They took a large bailout from taxpayers and shares tumbled. They restructured the equity and the government has ultimately exited their equity position. The company's balance sheet looks better than it did two years ago, with adequate loss reserves and equity capital.
In terms of the stock valuation, there is still a bit of a risk premium built into the stock, with the company trading for 0.79 price to book value and the price is below $5.00. This is why the company recently announced a 10:1 reverse split. The company also announced that they would reinstate the dividend at a penny per share.
In the long-run, this stock is a buy. Value investors would tell you that financial companies shouldn't trade below book value, especially when there are adequate loss reserves.
In the short-run, however, this stock could trade lower, as traders tend to short stocks that do reverse splits, regardless of the fundamentals. This is evident from the pricing of the call options, which for the April expiration are trading with only a 1 or 2 cent premium today. If investors were bullish on this stock then a time value premium would be apparent in these calls.
If you want to own Citi stock, I recommend using a dollar cost averaging approach to accumulate shares. Set a dollar limit and buy a little over the weeks before and after the reverse split. Even if the price plunges, you'll end up picking up more shares when the price is low.
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