I’m Back to Buy More of This Stupid Cheap Bank

TFS Financial remains way underpriced.

Jul 24, 2014 at 2:11PM

It's been a few months since my Special Situations portfolio acquired more stock in TFS Financial (NASDAQ:TFSL), and I'm back now to announce another purchase. The bank remains ridiculously cheap and has plenty of ways to create value for shareholder, including ways that have nothing to do with how the market performs. I pointed all this out in my prior buy recommendation.

TFS Financial is finally free of the regulatory action that prevented the company from freely buying back stock and trying to initiate a dividend. The company's first action after getting out from under regulators was to announce a stock buyback, a move that management had telegraphed for years. And management came out swinging, committing to buy 5 million shares, or about 6% of the approximately 80 million shares with an economic interest in the bank.

With the stock trading around 60% tangible book value, buybacks are an immediately and hugely accretive use of cash. I love to see management make this capital allocation move. Each share that remains then becomes even more discounted. Management has a history of strong buybacks, too.

I estimate that following the buyback – which I suspect is close to completion already – the company will have about $150 million at the holding company that it could immediately use for buybacks. So that could be another 15% or so of the stock that it could repurchase in short order. I'm anticipating another announcement shortly after the completion of this repurchase authorization. And we could hear something next week as the company reports earnings.

But that's only one source of value. The second major source is expanding the balance sheet, and the company is working to put its massive excess capital reserves to work in growing the loan book. The market is just not pricing in growth here. If we see a drastic spike in quarterly earnings, the stock might take off. If not, buybacks will continue at depressed prices.

Finally, management is trying to initiate a dividend that would be approximately 2% at current prices. To do this, they have to get a waiver from the owners of the non-economic interest in the bank, the mutual holding company. The verdict on that should be complete by July 30.

I'm agnostic on the dividend, except to the extent that it encourages investors to buy a stock that they wouldn't otherwise. With the stock trading at 60% of tangible book, it's much more capital-efficient to repurchase stock all day long rather than pay a dividend.

So that's three ways to win with TFS Financial.

Foolish bottom line
So that's why I'm adding more to my position in TFS Financial, even though the stock already comprises 11% of my Special Situations portfolio. On the next market day I'll add another $500 to the position. Interested in TFS Financial or have another stock to share? Check out my discussion board or follow me on Twitter, @TMFRoyal.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Jim Royal owns shares of TFS Financial. The Motley Fool owns shares of TFS Financial. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers