With the specter of Fed interest rate hikes looming over the market for the past 2 years, many interest-rate sensitive stocks have gotten sold off. However, there are some stocks which will benefit from higher rates, namely banks, and, in particular, small banks.
Why small banks vs. large ones? Because smaller banks stick to traditional lending and deposits as their business model, whereas larger banks also play with derivatives and other forms of trading to make money.
We found 2 small/micro cap bank stocks, which have gotten good support from the market in 2015: Oritani Financial Corp (O:ORIT), ORIT, and United Bank Corp, (O:UBCP), ORIT has a much larger market cap than UBCP, and has way more trading volume, but both stocks have attractive features. especially in the dividends department.
Dividends: Although these aren’t high dividend stocks, they both have a 4%-plus dividend yield. In addition, both declared a special dividend in the 4th quarter of 2015. Over the past few years, ORIT’s special dividends have ranged from $.25 to the $.50 it declared this November, which gives it a trailing yield of over 7%.
UBCP raised its quarterly dividend by $.01, and declared a special dividend of $.04 in Q4 2015. It does have more of a checkered past for dividends, though – it cut its $.14 quarterly payout to $.07 in 2012, due to higher regulatory expenses that all banks had to assume as a result of the Financial crisis fallout. However, it has been working its way back upwards since 2013.
Options: Although ORIT has options available, there is very poor liquidity for them, so we haven’t added any to our Covered Calls Table or to our Cash Secured Puts Table. However, you can see details on over 25 income-producing trades in each of these tables.
Earnings: ORIT has shown good earnings growth over the past several years, even in the face of low interest rates.
(Source: ORIT website)
UBCP has also grown its net income and net loans since 2012, and looks poised to do so again in 2015, with 1 quarter left to report:
(Source: UBCP website)
Valuations: Excepting its P/E, much larger ORIT is commanding higher valuations than UBCP, most likely due in part to its big special dividend.
Financials: ORIT also has a much higher Return On Assets ratio than UBCP, which is a key ratio for measuring banks’ earnings efficiency.
Profiles: Oritani Financial Corp. operates as a savings and loan holding company for Oritani Bank that provides various banking services for individual and corporate customers in the US. It accepts a range of deposit products, including non-interest and interest-bearing demand and NOW checking accounts, money market deposit accounts, savings accounts, retirement accounts, and time deposits. It also provides residential commercial real estate loans comprising mortgage loans secured by apartment buildings; commercial real estate loans, including mortgage loans secured by retail anchor shopping centers, commercial offices, retail space, warehouses, and mixed-use buildings; and residential real estate loans, such as one to four family residential real property and home equity loans. It also offers second mortgage and equity loans, and home equity lines of credit, as well as construction loans.
In addition, ORIT owns and invests in securities and real estate properties. As of 6/30/15, it operated 25 full service branches in Bergen, Hudson, Essex, and Passaic counties in New Jersey; and 2 lending offices in New York. The company was founded in 1911 and is headquartered in Township of Washington, NJ.
United Bank Corp.: Operates as the bank holding company for The Citizens Savings Bank that provides commercial and retail banking services to individuals, businesses, and other organizations in northeastern, east-central and southeastern Ohio. The company provides a range of services, which include accepting demand, savings, and time deposits, as well as granting commercial, real estate, and consumer loans. It also offers brokerage services through LPL Financial member NASD/SIPC.
UBCP operates through its main office; stand alone operations center in Martins Ferry, Ohio; and 18 branches located in Belmont, Harrison, Jefferson, Tuscarawas, Carroll, Athens, Hocking, and Fairfield counties and the surrounding localities. United Bancorp, Inc. was founded in 1974 and is headquartered in Martins Ferry, Ohio.
Disclosure: Author owned no shares of either stock covered in this article as of yet.
Disclaimer: This article is intended for informational purposes only, and is not intended as investment advice. Please do your own due diligence before investing in any stocks mentioned in this article.