Citigroup Inc (C): Speculative Megabank Or Future Dividend Growth Machine?

Conclusion

Citigroup Inc (NYSE:C) has come a long way since the dark days of the financial crisis, and the new management team has done a great job turning around what was truly one of the worst banks on earth.

However, don’t forget that there is a reason that Citigroup remains the most undervalued American megabank, and possibly one of the more interesting “dirty value” stocks in this overheated market.

That’s because Citigroup’s previous management left its balance sheet shattered beyond the bank’s ability to repair itself without a Federal bailout. While the new management culture appears to be as conservative as that at JPMorgan Chase or Wells Fargo, until we pass through another economic downturn shareholders of Citigroup are taking it on faith that its black box of derivatives is truly now as relatively benign as that of its more proven cousins.

In other words, Citigroup remains the most undervalued but most speculative megabank you can own.

Wells Fargo is the only bank stock I own (see my original Wells Fargo thesis here) because it’s so hard to get comfortable with balance sheet risk and trust issues with management (of course, less than a year after purchasing my initial stake in Wells Fargo the scandal broke out, but that’s another story). I like the company’s business mix, which lacks much of the volatile investment banking and trading operations of its peers.

Overall, Citigroup is a speculative dividend growth stock that will likely never find a home in my Top 20 Dividend Stocks portfolio. There are too many risks and trust issues that I can’t get comfortable with. I’m not the only investor saying this, which is why Citigroup’s stock could go on to do very well if management proves us wrong over time.

Disclosure: None