Critical Survey: Webster Financial (NYSE:WBS) vs. Arrow Financial (NASDAQ:AROW)

Webster Financial (NYSE:WBS) and Arrow Financial (NASDAQ:AROW) are both finance companies, but which is the better investment? We will contrast the two companies based on the strength of their dividends, valuation, profitability, institutional ownership, risk, analyst recommendations and earnings.

Dividends

Webster Financial pays an annual dividend of $1.60 per share and has a dividend yield of 2.5%. Arrow Financial pays an annual dividend of $1.16 per share and has a dividend yield of 3.6%. Webster Financial pays out 29.8% of its earnings in the form of a dividend. Arrow Financial pays out 56.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Arrow Financial has increased its dividend for 7 consecutive years. Arrow Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation & Earnings

This table compares Webster Financial and Arrow Financial”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Webster Financial	$4.18 billion	2.45	$768.71 million	$5.37	11.83
Arrow Financial	$223.07 million	2.37	$29.71 million	$2.07	15.51

Webster Financial has higher revenue and earnings than Arrow Financial. Webster Financial is trading at a lower price-to-earnings ratio than Arrow Financial, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a breakdown of current ratings for Webster Financial and Arrow Financial, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Webster Financial	1	1	14	0	2.81
Arrow Financial	0	3	0	0	2.00

Webster Financial presently has a consensus target price of $72.77, indicating a potential upside of 14.53%. Arrow Financial has a consensus target price of $30.75, indicating a potential downside of 4.21%. Given Webster Financial’s stronger consensus rating and higher probable upside, equities analysts clearly believe Webster Financial is more favorable than Arrow Financial.

Insider & Institutional Ownership

85.6% of Webster Financial shares are held by institutional investors. Comparatively, 46.7% of Arrow Financial shares are held by institutional investors. 0.5% of Webster Financial shares are held by insiders. Comparatively, 3.3% of Arrow Financial shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Risk and Volatility

Webster Financial has a beta of 1.05, meaning that its stock price is 5% more volatile than the S&P 500. Comparatively, Arrow Financial has a beta of 0.82, meaning that its stock price is 18% less volatile than the S&P 500.

Profitability

This table compares Webster Financial and Arrow Financial’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Webster Financial	21.32%	11.07%	1.23%
Arrow Financial	14.65%	9.46%	0.87%

Summary

Webster Financial beats Arrow Financial on 13 of the 17 factors compared between the two stocks.

About Webster Financial

Webster Financial Corporation operates as the bank holding company for Webster Bank, National Association that provides a range of financial products and services to individuals, families, and businesses in the United States. It operates through three segments: Commercial Banking, HSA Bank, and Consumer Banking. The Commercial Banking segment offers commercial real estate and equipment financing, business banking, asset-based lending, and commercial services; public sector finance; mortgage warehouse financing; sponsor and specialty financing services; credit, deposit, and cash flow management services; and wealth management solutions to business owners and operators, including trust, asset management, financial planning, insurance, retirement, and investment products, as well as treasury management services comprising derivative, treasury, accounts payable, accounts receivable, and trade products and services. This segment also provides commercial services, such as accounts receivable factoring and trade financing, payroll funding, and business process outsourcing. The HSA Bank segment offers health savings accounts, health reimbursement arrangements, flexible spending accounts, and commuter benefit services that are distributed directly to employers and individual consumers, as well as through national and regional insurance carriers, benefit consultants, and financial advisors. The Consumer Banking segment provides consumer deposit and fee-based services, residential mortgages, home equity lines, secured and unsecured loans, and credit cards to consumers; and small business banking products, such as credit, deposit, and cash flow management products to businesses and professional service firms. The company offers online and mobile banking services. Webster Financial Corporation was founded in 1935 and is headquartered in Stamford, Connecticut.

About Arrow Financial

Arrow Financial Corporation, a bank holding company, provides commercial and consumer banking, and financial products and services. The company’s deposit products include demand deposits, interest-bearing checking accounts, savings deposits, time deposits, and other time deposits. Its lending activities comprise commercial loans, such as term loans, time notes, and lines of credit; and commercial real estate loans to finance real estate purchases, refinancing, expansions, and enhancement to commercial properties, as well as commercial construction and land development loans to finance projects. The company’s lending activities also include consumer installment loans to finance personal expenditures, personal lines of credit, overdraft protection, and automobile loans; and residential real estate loans, fixed home equity loans, and home equity lines of credit for consumers to finance home improvements, debt consolidation, education, and other uses. In addition, it maintains an indirect lending program. Further, the company provides retirement planning, trust, and estate administration services for individuals, as well as pension, profit-sharing, and employee benefit plan administration services for corporations. Additionally, it offers insurance agency services comprising group health care policies and life insurance, and property and casualty insurance products; and investment advisory services to its proprietary mutual funds, as well as holds a real estate investment trust. It operates in the northeastern region of New York State in Warren, Washington, Saratoga, Essex, Clinton, Rensselaer, Albany, and Schenectady counties. Arrow Financial Corporation was founded in 1851 and is headquartered in Glens Falls, New York.