Author: Andrew Schornack
Model: Financial Services
Disclosure: Long TWGP, PBCT
The month of April posted mixed results in the portfolio. While the portfolio outperformed the newly added benchmark SPSY (S&P Financials Index) by 2.13%, it underperformed the S&P 500 Index by 0.82% according to Covestor’s calculations.
The existing portfolio as of April 30, 2011 consists of common stocks and preferred stocks, some of which pay dividends and others that do not. It holds stocks that pay monthly dividends and others that pay quarterly dividends. This is a uniquely designed strategy to provide that the target yield of the portfolio is higher than the 3% minimum during any given year, coupled with an overall targeted annual return. I continue to weigh positions in the portfolio to capture the minimum yield while exposing the portfolio to stocks that may not provide attractive yields but do provide opportunity for capital appreciation. Of course, some of the stocks provide both: TWGP and PBCT are two examples.
In the month of April, the portfolio made two changes. The first was closing of a position in NWBI, a fine institution, but there were better opportunities for the portfolio in both yield and capital appreciation.
The opportunity that presented itself was an investment in PBCT. PBCT, People’s United Financial, Inc., is a diversified financial services company with $25 billion and 341 branches in Connecticut, Vermont, New York, New Hampshire, Maine and Massachusetts (Source: Company press release, 4/20/11) . The bank has taken the opportunity to add, through strategic acquisitions, deeper roots into key markets. I believe this will long-term add to the franchise value of the business. Ultimately, it should increase earnings and the price to earnings multiple of the bank’s stock.
The company recently increased its dividend. With the April month end closing price of $13.70, the indicated yield is 4.6% (Source: Yahoo Finance). The balance sheet looks well structured, reserves adequate, strong capital ratios, and the organic growth potential is attractive over the next five years.
I continue to look for investment ideas in the regional bank and insurance sectors. Given the existing yield curve, rebounding economy, better premium pricing, and the likelihood of a rise in interest rates in late 2011/early 2012, these investment areas may provide for attractive opportunities.
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