Harvard Winters
Long/short equity, growth at reasonable price, value

Advice For Capitol Federal Financial, Inc.: Pay More Special Dividends And Stop The Share Buybacks

Last June, I wrote an article about Topeka, KS-based thrift Capitol Federal Financial, Inc. (NASDAQ:CFFN), in which I argued that CFFN was highly overvalued because while its price/tangible book value per share (TBV-PS) multiple might seem low at only 1.01x, it was too high given CFFN's poor return on average tangible common equity (RoATCE). RoATCE averaged 3.60% for the five quarters after CFFN's December 2010 second-stage conversion from mutual form. Although thrifts generally have lower RoATCEs than banks, good ones can still post RoATCEs of 12% or higher.

CFFN has since posted three quarters of financial results. What has happened? Assets fell by another 3.5%, or 5.7% in total from their year-end 2010 peak. RoATCE increased slightly, averaging...

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