There has been lot of uncertainty in investing in major financial institutions over the last few years due to the financial crisis, a moribund housing market and the complexity of these institutions' balance sheets. Increasing regulations and the corresponding reduction of trading revenues are not going to help the investment case for investing in the sector. One of the side effects of the challenges of large financial institutions is income investors have lost what was a core part of a traditional income portfolio.
However, smaller institutions do not have most of the problems of their bigger brethren and some offer high yields, low valuations and also a possibility of a buyout in the future as the sector consolidates as a method of growth and also as a response to greater compliance costs. One that looks interesting here and has been picked up some recent insider buying is Pulaski Financial (PULB).
"Pulaski Financial Corp operates as the holding company for Pulaski Bank that provides a range of financial products and services for businesses and retail customers. It operates 13 full service branches and 6 loan production offices" (Business description from Yahoo Finance)
6 reasons PULB is good pick for income investors at under $8 a share:
- The stock yields a very generous 5.4% and the company also did not have to reduce its dividend during the financial crisis.
- Insiders have been steady buyers of the shares this year (Approximately 30,000 shares)
- The stock is selling near the bottom of its five year valuation range based on P/B, P/E, P/S and P/CF.
- PULB is cheap for a 5% plus yielder at just 84% of book value and less than 9 times forward earnings.
- The company more than tripled net income in FY2011, credit quality continues to improve and Pulaski Financial is on its way back to the 88 cents a share it earned in 2007. It also has increased deposits, assets and loans on its books significantly from 2007 despite the financial difficulties of the last few years.
- The stock has solid long term technical support 10% below these levels (See Chart)
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PULB over the next 72 hours.