By Nathan Slaughter
One Stock for Your Portfolio
“Best-Managed Bank in America”
Hudson City Bancorp
Note from Cabot Wealth Advisory Editor Elyse Andrews: Occasionally, we bring you articles from outside sources that we feel you will be interested in and benefit from. Today, we have an article from Nathan Slaughter, Chief Investment Strategist of the Half-Priced Stocks newsletter at StreetAuthority, about why you should invest in the “Best-Managed Bank in America.” I hope you enjoy it!
If there’s one bank stock to have in your portfolio, this is it.
Oddly enough, you’ve probably never heard of this company. Yet it’s one of the largest savings and loan institutions in the country and it’s clobbering its competition in critical industry metrics …
* It’s got the best efficiency ratio in the business–needing only $0.20 to bring in $1.00 of revenue
* Its average branch has $145 million in deposits–double the national average
* It gained market share in 20 of its 22 markets last year
And despite its low profile, Forbes named it the “Best-Managed Bank in America” for the last two years straight. I bet it gets the award for 2009, too.
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While once-stalwart companies like Bank of America and Citigroup slashed distributions overnight, this firm continues to shower its investors with a steady stream of growing dividend checks. In fact, amidst the worst year for the financial sector since the Great Depression, this little-known bank breezed right along and hiked its dividend six times.
Hudson City shares have performed exceptionally well since the beginning of the credit crisis. Its stock is up 15% since June 2007, while the Keefe Bruyette & Woods Mortgage Finance Index has fallen almost 82%.
How did Hudson City withstand the worst of the financial crisis? Management never fell prey to the subprime mortgage mania. They balked at exotic adjustable-rate loans and refused to even dabble in auto or credit card lending.
Instead, the company deals primarily with wealthy customers sporting top FICO scores who can make hefty down payments and easily afford their monthly note. In fact, the firm’s branches are concentrated within 10 of the nation’s top-50 counties in terms of median household income. And its conservative loan-to-value ratio of 60% is much lower than that of its peers.
That slower, measured approach has paid off handsomely and kept Hudson City at arm’s length from the problems plaguing other banks. Remarkably, the company didn’t need a penny of government TARP money. And because it doesn’t package and sell its loans to investors (or invest in private mortgage-backed debt) it hasn’t run into liquidity issues or been forced to take write-downs because of problems in the secondary market.
Not surprisingly, this conservative lending philosophy has put Hudson City a cut above the rest. And it’s helped make Hudson City Bankcorp the “Best-Managed Bank in America.”
Chief Investment Strategist, Half-Priced Stocks
P.S. I recommended HCBK to my Half-Priced Stocks subscribers in May. The shares have already appreciated 10.5% … but that’s peanuts compared to how much higher I think it’s headed. Get my full report here.