Founded in 1870, Norwood Financial (NWFL) is an attractive bank holding company that operates through its subsidiary, Wayne Bank. It has 14 offices in Northeastern Pennsylvania and 16 offices in Delaware, Sullivan, Ontario, Otsego, and Yates Counties, New York, and offers investors the potential for annual total returns of almost 16%, highlights Ben Reynolds, editor of Sure Dividend.

NWFL offers a range of personal and business credit services, trust and investment products as well as real estate settlement services to the consumers, businesses, nonprofit organizations, and municipalities in each of the communities the company serves. The company also operates a Wealth Management/Trust Department, which provides estate planning, investment management, and financial planning to customers.

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Norwood generates about $75 million in annual revenue, and trades with a market cap of $217 million. On July 26, Norwood released its second-quarter 2023 results for the period ending June 30. For the quarter, the company reported earnings of $6.50 million, which represents a 5.2% decrease compared to $6.85 million earned in the same period of 2022.

The decrease includes a $1,252,000 decrease in net interest income, a $706,000 decrease in total other income, and a $466,000 increase in total other expenses, which were partially offset by a $2,050,000 decrease in the provision for credit losses. Reported diluted earnings-per-share equaled $0.81 compared to $0.84 in the year ago period, a decrease of 3.6%. Net interest margin for the quarter was 3.09%, compared to 3.49% in the same period of 2022.

In some counties, Norwood Financial has a strong position and large market share with respect to deposits. The bank has the third-largest share of FDIC-insured deposits in Wayne County (22.3%) and the second-largest share in Pike County (18.1%).

Norwood Financial has grown its dividend for 31 consecutive years and was recently offering a 4.1% dividend yield with a wide margin of safety. Its payout ratio has remained around 40% over the last decade and is now standing at 33%. We expect the bank to keep raising its dividend at a mid-single-digit rate for many more years, particularly if projected earnings growth comes to fruition.

Shares are presently trading hands at 8 times our estimate of 2023 earnings. Our fair value multiple is 10 times earnings, indicating the potential for a 4.6% annual tailwind from the valuation. When combined with the 4.1% starting dividend yield and 8% anticipated growth, this implies the potential for 15.7% annual total returns.

Recommended Action: Buy NWFL

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