Hudson City Looks Like a Solid Buy Right Now

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Hudson City Bancorp (Nasdaq: HCBK  ) has proved its resilience and looks poised for growth in the long run. This regional bank refused to throw in the towel when the financial catastrophe compelled so many U.S banks to go for a bailout. That's perhaps the first reason why I'm attracted to it.

I have already explained that the investors shouldn't fret over the company's net loss and the slashing of its dividend in its latest quarter, since both stemmed from short-term restructuring charges. Now I am going to evaluate this stock's return-generating capacity in context with its price.

Evaluating profitability
Return on equity is a crucial metric that evaluates how effectively a company is utilizing its capital. In Hudson's case, ROE (five-year average) stands at 5.88%.

That figure has been hovering around 10% for the last two years, but it took a hit in the last quarter as net income was affected by overhaul charges. Marshall & Ilsley's (NYSE: MI  ) and Flagstar Bancorp's (NYSE: FBC  ) five-year ROEs are both decidedly negative. Thus, on an absolute basis, Hudson looks merely OK -- but on a relative basis, it looks pretty attractive.

After posting profits for 11 consecutive years, the bank's previous quarterly loss ended that trend. Looking beyond these one-time restructuring charges, Hudson's fundamentals look pretty upbeat. Hudson's tier 1 capital ratio improved to 8.12% in the last quarter, as compared to 7.95% in the preceding quarter. But with a tier 1 capital ratio of 11%, Marshall looks to be in a slightly better position than Hudson. That said, Marshall's narrowing revenue and widening net loss are a bit of a concern. All in all, Hudson operates fairly consistently and conservatively.

Even after a dividend cut, Hudson offers a decent current yield of 3.9%. I have elaborated on Hudson's unwavering trend of paying dividends, even during the ugly crisis. If it's income you're after, then you might want to check out Hudson.

The Foolish bottom line
Looking at its strong fundamentals and considering the fact that it is trading near its 52-week low, Hudson looks like a pretty good buy to me. This bank has been bucking up, and it could ideally suit patient investors who focus more on a company's ability to grow and generate profits.

Fool contributor Zeeshan Siddique does not own any of the stocks mentioned in the article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (17)

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  • Report this Comment On June 14, 2011, at 4:09 PM, KJP712 wrote:

    I agree with this assessment of HCBK.Adding this to my Watchlist.

  • Report this Comment On June 18, 2011, at 1:55 PM, mikeyol wrote:

    The trouble with these so-called financial experts, like Zeeshan Siddique, is that they cannot see past their computer screens. I do agree with him about the one time restructuring charges, but for a different reason. A lot of Hudson City customers bought stock offerings at $10/share, when the dividend was much higher. Now, it plummeted to $8/share and dividends, from 60 to 32 cents/share. For many, that dividend income was part of their fixed income. Secondly, Hudson City opened branches in areas with established banks. There are more employees in their Ocean County, Nj branches than customers. I know- I live down there!!! DON'T BUY THIS STOCK!!!

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12/31/1969 7:00 PM
HCBK.DL $0.00 Down +0.00 +0.00%
Hudson City Bancor… CAPS Rating: ***
FBC $27.31 Up +0.85 +3.21%
Flagstar Bancorp CAPS Rating: ***
MI.DL $0.00 Down +0.00 +0.00%
Marshall & Ilsley… CAPS Rating: ***