TFSL is selling below $15.50 and certainly in the lower end of its more recent range. I plan to add as soon as trading rules allow, assuming it is still below $16. Don’t expect big capital gains but at my age I get enough mood swings just from watching the SaaS portion of my portfolio gyrate like the best Elvis impersonator!
So for a boring income stream provider this seems like a good relatively safe place to get a decent dividend. Thoughts?
David
Long TFSL
Hey, David,
I think it’s the same issues that we’ve discussed over the last few months here. In the last few weeks many small banks have not held up especially well (some have), as rates rise quite quickly. It looks like investors are anticipating a slowdown in purchases, and refis are largely off the table now. But historically this valuation – I get a price to partically converted tangible book of about 47% – has been a pretty good time to buy. Then ride to 65-67% – and sell if that’s your thing.
That said, I just don’t see how they can raise the dividend this year by any substantive amount. Maybe they’ll pick up the buybacks in the face of thise downtick in the stock. One can hope at least.
Jim
Also, it’s worth noting, and I should have mentioned it before, that they just barely outearned their dividend in the most recently reported quarter.
So it’s not out of the question that a dividend cut is coming if they don’t get earnings back up in the soon-to-be-reported quarter or have the prospect soon after.
Jim
So now we have two quarters of TFSL barely meeting their dividend and high mortgage rates that are slowing many purchasing decisions.
The holding company had $285.3 mn at the end of 2021, or about 35% of the market cap, of which $238 million is cash or short-term investments.
Let’s see what they do with some of that cash first. BTW, I don’t own shares.
Jim
Thanks Jim and Kingran for your thoughts.
FWIW, my cost basis in TFSL is still below the market price, hence my question regarding selling (i.e. how much downside if they cut the dividend by say, 30%).
Cheers!
Murph
Hey, Murph,
I would suspect there would be at least 20% downside from here, given that kind of cut, since there’s probably already some cut being priced in today. However, my general read on things like this is that the market keeps marking a stock down when it’s all but obvious that a company needs to cut. So often it may be pricing a cut until it actually happens and then it falls even further after people sell following the announcement.
That said, I do think it’s important to keep in mind the absolute level of the valuation, regardless of the dividend. P/PCTBV is something like 46% today. If it goes down, say, 20%, then you’re looking at a valuation of 37%. If it dropped there on a 30% dividend cut, then you’re looking at a price of $12 on a $0.79 dividend, or a 6.6% yield. Will it go cheaper than that? How much lower than that would it go, assuming we think the TBV is still solid? We’ve been seeing some significant TBV writedowns at some banks on their available-for sale bond portfolios, given rising interest rates. But 37% of PCTBV is pretty cheap. Would we see buybacks resume there?
Jim
Thanks again, Jim!
I’ll just hold what I have for now and see if the dividend cuts happens, why it happens, and what the business prospects are after that…then make the next add/hold/sell decision on the company.
Cheers!
Murph