Does This Thrift Bank Belong In Your Portfolio?

If you've owned stocks in the financial sector at any time in the past three years, chances are you've spent some extra time in bed at night wondering where the profits have gone. But what if I told you that there is a bank that not only grew profits, but also increased its dividend in the face of the worst recession in seven decades?

Curious as to who that might be? Well, say hello to Hudson City Bancorp (Nasdaq: HCBK  ) , your friendly neighborhood growth story!

Hudson City is a single-family and multi-family mortgage lender based on the East Coast. It was able to grow during the aforementioned economic nosedive because it doesn't deal in the secondary mortgage market of buying and selling loans, it only originates them.

Originating loans to single and multi-family residences allowed them to better control the true assets in their loan portfolio and the credit-worthiness of those assets. But two factors demonstrate just how far ahead of the competition Hudson City is: its efficiency ratio and its dividend.

Efficiency, efficiency, efficiency
The efficiency ratio for a financial institution is simply a measure of how much it has to spend to bring in one dollar of revenue. For most thrift banks the average performance level is somewhere around 56% (or 56 cents spent to bring in 1 dollar of revenue).

Take a look at these numbers:

Thrift Bank

Efficiency Ratio

Hudson City Bancorp

18.4%

New York Community Bancorp (NYSE: NYB  )

36.6%

First Niagara Financial Group (Nasdaq: FNFG  )

60.6%

Not only does that 18.4% look impressive, according to Hudson City's latest quarterly filing, it's by far the lowest ratio of all thrift banks with at least $50 billion in assets. Simply put, they know how to drive growth without increasing expenses.

And they pay you for it!
Hudson City's dividend yield is truly a marvel at 4.9%, especially in the current environment.

In fact, as crippled banks cut, suspended, and outright cancelled their dividends over the last three years, Hudson City increased its dividend by 76%. Going back a full decade, Hudson has increased its dividend an astounding thirty times!

The Foolish bottom line
Hudson City is currently trading at just a shade under 1.1 times its book value and 11 times 2011 profit projections. They've done a good job of growing shareholder value in the midst of a poor economic environment and continue to put shareholders first with a hefty dividend.

With numbers like these, Hudson City should deserve a spot in your long-term portfolio.

More Foolishness on Hudson City:

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Fool contributor Sean Williams does not own shares in any companies mentioned in this article. You can follow him on CAPS under the screen name UltraLong. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 11, 2010, at 11:39 PM, Momentum21 wrote:

    thanks Sean, I like the idea...growth in the banking sector will be challenged with all of the regulation ahead.

    why not go with a player who has demonstrated growth through the toughest times (like HCBK)?

    another idea would be M&A candidates...the larger banks will need to buy the growth going forward perhaps...KEY and UMPQ?

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