Get in on $794 Million of Shareholder Payouts From 3 “Heavily Overcapitalized”
There’s a select, newly flush group of small banks appearing in 2016. They minted their own pile of money by taking advantage of a financial phenomenon known as a mutual-to-stock conversion. This January, these management teams will start shoveling this extra cash back to shareholders in the form of buybacks and dividends.
These banks raised too much money in 2015…
So they’ll be returning $794 million to shareholders starting in January.
I couldn’t believe what the bank’s CFO was telling me over the phone…
“Our intent is to return 100% of our earnings to shareholders once again next year.”
I had to verify that he said “again.”
For the last four years, his company had returned $852.8 million to its shareholders in the form of share repurchases, regular dividends, and special dividends.
But here’s the crazy thing… by my calculation, the bank has so far distributed less than half of its outstanding cash to shareholders.
If true, this means that shareholders have at least another 4-5 years to collect “hidden yields” from this bank that flat out just has too much cash.
And their CFO all-but-confirmed my analysis when we spoke.
How does an obscure, small community bank end up with hundreds of millions or even billions of extra dollars that it needs to “get rid of” by lining the pockets of its shareholders?
It’s all due to a “once in a company lifetime” event known as a mutual-to-stock conversion.
If you’re not familiar with conversions, think of them like initial public offerings, or IPOs. In these events, companies put their shares up for sale to the public for the first time and get cash back in return.
Conversions are similar – but some small private banks choose to go public in two steps instead of one.
This means that in lieu of selling all shares to the public, they’ll sell some in a first step while keeping the rest in what’s called a mutual holding company (MHC).
Several years later, the bank will complete the second step of the conversion and sell the MHC’s stake to the public.
Since smaller banks tend to have capital-efficient business models, management may not need most or even all of the cash raised in this sale.
The result? An overcapitalized bank.
That’s literally a bank with too much money.
Overcapitalized Banks: A Nice Problem for Management and Shareholders
In December 2010, Capitol Federal Financial (CFFN) completed its second-step and sold its MHC’s stake to the public. “CapFed” became a fully publicly traded stock and raised $1.2 billion in cash.
But they didn’t actually need the billion.
So for the four ensuing years, CapFed returned $852.8 million to its shareholders in the form of share repurchases, regular dividends, and special dividends:
The stock buybacks kicked off a virtuous shareholder yield cycle, allowing the company to increase its earnings per-share (EPS) over a time in which total earnings were flat.
Shrinking outstanding shares gave CapFed’s dividends more mileage as there were fewer shares getting a piece of the total payout.
They’ve averaged a total annual dividend north of 7% since the second-step conversion…
With payouts like these, you’d think investors would have flocked to CapFed and bid up it’s price. But they didn’t, because…
These yields are completely hidden.
The majority of these payouts come in the form of “special dividends.” These are technically one-time dividends… so they don’t show up on any financial website like Yahoo! Finance.
Which means the yield that Yahoo! is showing is understated in a big way:
This 2.9% stated yield only represents 40% of the money that CapFed had put in shareholders’ wallets in previous years! In other words, the “Capital Dividends” blue bars in the dividend history chart below aren’t visible to most other investors…
Since my original recommendation to Hidden Yields subscribers, we’ve earned 8% gains on CFFN in less than two months… which translates to annualized gains north of 50%.
Now I don’t expect to make 50% per year on these small banks. But I do expect low-risk double-digit annual gains that you can literally bank on.
At this point you may be wondering why I’m so confident this is going to happen again. Well, CFFN isn’t the only small bank to follow this playbook. Let me tell you about a few other recent conversions. All of them happened in the second-half of 2012 and made shareholders handsome profits over the ensuing 3+ years…
The Conversion Two-Step:
Same Direction for Steady Gains
In July 2012, HomeTrust Bancshares (HTBI) raised $211 million in its first-step conversion.
Starting in mid-2013, the company launched three consecutive share repurchase programs that took 14% of its shares outstanding off the market within 12 months.
Let me take a moment to explain the significance of this…
Stock prices can do anything in the short term, but over the long run, they tend to follow earnings growth. Most investors know this – but there’s a small yet critical nuance they miss when chasing earnings growth.
As a shareholder, it’s actually irrelevant to you whether or not your company’s earnings go up in absolute terms. What matters to you is that its earnings per share go up year-after-year.
Perennial earnings growth is a tall mandate. But perennial earnings per share growth is actually a much easier hurdle to scale – thanks to share buybacks.
During a buyback, shares are typically cancelled or kept as treasury shares. Either way, it means there are fewer shares outstanding.
Fewer shares outstanding relative to the same earnings means increased earnings-per-share (EPS). And these overcapitalized banks are in a perfect position to lock in higher EPS growth for years, thanks to the big pile of money they’re sitting on.
Back to HomeTrust. Since 2012, the bank has been able to all-but-guarantee double-digit EPS growth simply by taking enough of its shares off the market.
Its 14% share reduction would have resulted in a 16%+ EPS increase if earnings themselves are merely flat.
HomeTrust’s stock traded below book value the entire time it was purchasing, which made the buybacks a no-brainer.Shares of HTBI are up a whopping 60% since the event, thanks to higher earnings that were “juiced” by a double-digit reduction in share count.
Madison County Financial (MCBK) followed the same formula a few months later.
It completed its first step initial conversion in October 2012, and its share price rallied 29% over the next 18 months:
MCBK Rallies 29.4% in 18 Months Post-Conversion
The lone catalyst? Two share repurchase programs totaling 320,000 shares, or roughly 12% of shares outstanding.
Management got most of them just below or at book value. So it was able to secure EPS growth, and today its stock price has increased more than 45%.
Malvern Federal Bancorp (MLVF) completed its conversion one week later and raised $36.4 million. Management opted to reinvest the cash in its business and the company’s profits last year ($0.58 per share) eclipsed all years since 2008 combined. Shares have rallied a sweet 41% since the conversion event.
These post-conversion stocks are usually so cheap and so flush with cash after the event that management has a few options. It can increase EPS via share buybacks, business reinvestment, or some combination of both.
As long as management doesn’t screw things up, shareholders will easily see double-digit returns going forward.
Currently, these three thrifts aren’t quite the undercover beauties they were three years ago. Their cash balances have sagged a little while their stocks are actually a bit more expensive.
One or more of them may – like CapFed – be able to keep the party rolling into the foreseeable future.
But I’d rather we turn our attention to 3 newly minted overcapitalized banks.
One just started buying back its own cheap shares hand over fist. And two more kicked off their first-step conversions at the beginning of the year… which means they’re likely to kick off 2016 with some big buyback announcements.
3 Big Buybacks Kicking Off 2016
To put things in perspective, CapFed completed its second-step conversion in 2010 and remained a screaming buy for five years as it showered its shareholders with a cool $852.8 million.
Since the beginning of last year, there have been a few more newly minted overcapitalized banks worth keeping an eye on.
I believe all 3 banks will reward their shareholders with double-digit returns in 2016.
These are the most secure 15-20% gains you’ll find in the market next year.
As I mentioned, one firm is already aggressively buying back its own cheap stock. In 2015, from April till October, it pulled an incredible 5.4% of its outstanding shares off the market.
Here’s what happened to the share count after this important “trigger event” happened:
This bank is actually the second most overcapitalized bank in America.
Its stockholders’ equity (SE), or the book value of shareholders’ interest in a company, is a gaudy 31% of total assets (by comparison, CapFed’s was 21% at its overcapitalization peak).
And its stock is cheap, trading just above book value (roughly 15% cheaper than CapFed). Management’s current stock repurchase began in April and was authorized for approximately 10% of its outstanding shares – so it’s about halfway home. When it’s complete, management will probably authorize another one.
It’s a perfect time for us to buy shares alongside them.
I’ll tell you how to get the name and ticker of this bank in a moment. But first, let me introduce you to two more best buys for 2016…
My second favorite has seen its shares already rally more than 20% in anticipation of this all-important “trigger event.”
But its stock still trades just above book value today. It is primed to rocket higher on any actual share repurchase announcement. And I have no doubt one is on the way.
And my third favorite firm is eligible to deploy some of the $121 million it raised for buybacks to kickoff 2016. This could really move the stock, which is currently trading for less than book value. Which means the time to buy is right now – before it announces a big repurchase program.
These trigger events don’t show up on any stock screen you’ll see – which makes them great vehicles for collecting “hidden yields” such as 15-20% gains from share repurchases and special dividends.
I’ll show you how to get the names of these three companies in a moment, but I’m getting ahead of myself…
How You’ll Bank 15-20% Gains in 2016
Hi, my name is Brett Owens.
For the last decade, I’ve been uncovering hidden market opportunities before Wall Street and the mass media caught on.
People who followed my recommendations had the chance to make a killing as a result of this “undercover” information.
In 2009, my research pointed to a rally in three specific – yet often ignored – commodities: cotton, sugar and orange juice. All three at least doubled after my recommendation. Cotton went up 304%.
I called the gold bull market as early as 2005 with great success. One particular gold investment I recommended soared over 278%.
I discovered an under-the-radar software company who developed a program essential to a number of the largest insurance companies in America. Those who followed my recommendation have nearly doubled their money in less than a year and a half.
And now I’m doing the same thing with “overcapitalized banks.”
The talking heads in the financial media have been yapping about the Fed’s impending rate hikes. They’ve got income-focused investors worried that their yields are going to get punished when the Fed finally boosts rates.
But that’s simply not true…
The truth is, these banks are going to deliver even higher profits as rates rise.
Remember, these banks have so much extra money that we don’t even need them to boost profits in order for us to earn double-digit returns on their shares. They’re going to send cash our way regardless, via share buybacks and special dividends.
And the all-but-inevitable rate increase is icing on the cake as it will also help to increase our profits as well.
You see, these banks don’t do anything financially fancy. They mostly underwrite conservative loans like residential mortgages that are among the lowest default rates in the industry. In short, the three banks I love all have absurdly low credit losses.
And when these conservatively run businesses get to see higher interest rates, it’s going to help their earnings. Current low interest rates limit what banks can charge their customers. Sure, the banks gets to borrow money at lower rates, but they loan the cash out at lower rates, too. The spread between the two has been declining since 2010.
When rates begin to rise, these banks will be able to raise their loan rates faster than their own borrowing costs will rise.
Add it all up and we’ve got potential 15-20% gains with an excellent safety margin… because all of these banks are trading at just above book value. Look, I don’t know how to say it any clearer…
This strategy is my favorite technique for collecting secure hidden yields right now.
And I want to help you get started as soon as possible, but first…
“Rake” Hidden Yields into Your Portfolio
These “banks with too much money” are the most secure plays with easy double-digit upside that I know of today. We’ve already profited handsomely from CapFed, and the “Class of 2016” will be no different. As we’ve already discussed:
- The 2015 conversions put nearly $800 million in the coffers of these 3 small banks.
- This excess cash will be used for share buybacks and special dividends, creating a virtuous cycle of rising earnings-per-share and payouts.
- We’ve already booked 8% in just 2 months using this strategy, and expect 15-20% gains from our 3 favorite plays for 2016.
- And the all-but-inevitable Fed rate increase will only raise our profit potential.
Of course it’s up to you to decide if this strategy is right for your portfolio once you’ve had a chance to review all the details.
That’s why I’ve prepared an in-depth guide on all three of my favorite overcapitalized bank plays called “The Great Windfall of 2016: $794 Million from 3 Banks with Too Much Money.”
Inside you’ll find the ticker symbol, my buy-up-to price and in-depth backstory on each stock. Plus you’ll discover:
- The second most overcapitalized bank in America with stockholder equity valued at 31% of total assets…
- A bank trading at only 93% of book value with $121 million ready to deploy towards buybacks…
- And the bank whose shares have already surged 20% but has plenty more upside ahead.
You’ll learn the rationale behind where, why and how to profit. In short, this report includes everything you need to know about these stocks before you invest a single penny.
All of this research is included in your free copy of “The Great Windfall of 2016: $794 Million from 3 Banks with Too Much Money.” And you can access it right now by clicking the button below.
These Banks Aren’t The Only Way to Generate Double-Digit Yields in 2016
Building true, long-term wealth requires diversification. And while I absolutely love the potential of these overcapitalized banks, even I wouldn’t advise putting all of your eggs in one basket.
Fortunately, you don’t have to. As I mentioned, there are multiple ways to collect these “hidden yields” that I’m so fond of.
Which is why I want you to have two additional special reports absolutely free. They reveal the other powerful “payout loopholes” I’m using to create 7%, 8% even 10%+ income streams under almost any market conditions.
The first report is called “Invisible Dividends: How to Uncover 7% Yields in Today’s 2% World.“
We’ve already discussed how CapFed has rewarded shareholders with a “hidden” dividend that doesn’t show up on regular stock screening tools. But it is only one company in a universe of stocks – across many sectors – that pays out a special dividend like clockwork.
With the current yield on the S&P 500 at barely 2%, and the 10-Year Treasury only slightly better, it’s been a tough 5 or 6 years for income investors.
If you want to stay ahead of the market and the looming threat of inflation, and if you want to collect a meaningful income in retirement that you can save or reinvest – you simply need do better than a mere 2%.
It can be done – if you look past common dividends and start collecting invisible ones as well. It’s the easiest and most overlooked strategy for doubling and tripling your effective yield.
Inside this report, I’ll show you:
- Why special dividends can double or triple the overall yield on your portfolio…
- What types of companies pay special dividends – and when they pay them…
- Plus 4 of the most reliable special dividend payers to add to your watchlist.
The other loophole I use for double-digit income is outlined in your third free report, “Dividend Raisers: Lock in Tomorrow’s Yields Today.”
Everyone knows the value of investing in companies that consistently increase their dividends, but have you ever heard of the “Goldilocks Yield”?
It’s a little-known (yet surprisingly simple) way to make sure you’re maximizing your profits with the right companies that raise dividends – today and over the long-term.
This report outlines the exact same techniques I used to tap into a 34% dividend increase from a major multi-national retailer AND a 24% total return.
It also includes one of my favorite plays right now, which sports a 6.3% yield that’s poised to double that in the coming years.
Follow These Strategies and Bank Double-Digit
Gains That Are Invisible to 99% of Investors
I’m sure you’ve heard about penny stocks that minted millionaires, or the super-secret charting techniques that supposedly identify huge wins before they happen.
They make for exciting stories and are fun to imagine. Sometimes – very rarely – people do get rich that way.
But the reality is that most investors get duped into chasing these windmills of dubious origins.
For every story about a new fortune created, there are thousands of other stories you never hear about… investments in supposed “hot stocks” that fizzled out… or ponzi schemes that left investors empty-handed.
That’s why my subscribers and I opt for a more certain path to growing our wealth – by using the tried and true strategies we’ve talked about today:
- Overcapitalized banks showering investors with 15-20% returns,
- 7% Extra Yields that don’t show up on regular stock screening tools,
- Dividend growers that can increase your income by 100-200%.
If you’re collecting double-digit yields, you’ll likely never have to worry about retirement, or running out of money. These techniques will ensure that you’re able to collect these hidden payouts that are invisible to 99% of investors.
And what’s even better is that all of these techniques are easy to trade. You don’t need to open any special accounts, learn advanced charts or formulas, or deal with obscure tax situations.
You don’t need to trade options or invest on margin.
You don’t need a broker to execute trades.
And there are no minimum capital requirements to get started.
These opportunities are open to anyone with a regular brokerage account, with any amount of money, and they’re as easy to trade as any other stock on the NYSE or NASDAQ.
It’s a shame, actually, that more investors aren’t taking advantage of these strategies already.
In fact, I believe everyone should be able to access these techniques, so I’m going to give you all of the special reports mentioned above absolutely free.
Simply click the button below and tell me where to send them. You’ll immediately receive an email with a link to download all three reports:
- The Great Windfall of 2016: $794 Million from 3 Banks with Too Much Money
- Invisible Dividends: Uncover 7% Yields in Today’s 2% World
- Dividend Raisers: Lock in Tomorrow’s Yields Today
Plus You’ll Get All of My New Payout Loophole Picks
These reports reveal some of my favorite plays right now and how to uncover countless other high-yielders just like them.
But I don’t want you to miss out on ongoing updates and any of the new opportunities we add to our portfolio in the coming months.
That’s why your reports are provided absolutely free as part of your your risk-free trial of my Hidden Yields research service.
Hidden Yields is the only monthly research service dedicated specifically to profiting from these unique strategies. And with an absolute minimum yield target of at least 7%, we’re trouncing treasuries and beating the average S&P 500 dividend two and three-times over.
And, as a subscriber to Hidden Yields, you won’t need to spend hours in front of a computer screen researching stocks. I’ll take care of all the work and send out new recommendations as they become worthy of your investment dollars, as well as updates on our existing picks.
If you think Hidden Yields might be for you, try it out for a full 60-days with absolutely no obligation whatsoever. You’ll get the three special reports free, plus all the benefits of full Charter Membership, including:
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- Members-Only Portfolio – All of our recommendations are laid out in an easy-to-read portfolio that includes exact buy/sell recommendations and buy-under prices.
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Our Ironclad 100% Money-Back Guarantee
I’m so confident you’ll profit from my research that I’m going to give you 60 days to try Hidden Yields absolutely risk-free.
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Start your risk-free Charter Membership today. Download your special reports, read the latest issue and start tracking a few winners in the portfolio that catch your interest.
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In the coming months, many investors will still be on the sidelines, fearful of what might happen next in China & Europe, waiting for commodities to turn around, or holding their breath for the next signal from Washington on the state of the economy.
In the meantime, our overcapitalized banks will shower shareholders with 15-20% gains, and our other Hidden Yields portfolio plays will continue delivering 7%, 8%, even 10%+ yields to subscribers.
Are you going to join us?
Yours in profits,
Chief Investment Strategist
P.S. Recent pullbacks have created an excellent buying opportunity, but it won’t last long. I encourage you to get started right now to ensure you can get in at the best possible price.