A Safe 7.5% Yield In A U.S. Niche Industry At A Perfect Time In The Credit Cycle


  • The yield is 7.5%, on a unique company that lends $ to a solid US community-based niche industry.
  • Its customer base has been the most stable part of the financial industry.
  • It's currently 9% below analysts' lowest price targets and is also selling below book value.
  • You've probably never heard of it, but it deserves a strong look.

Do you have a community bank in your town? Just like George Bailey's little bank in the classic film, "It's A Wonderful Life", community banks play a vital role in small and mid-sized towns in the US.

As income investors, we've owned several community bank stocks through the years and have had good results. These aren't flashy growth stocks but are usually Steady Eddie stocks with a dependable, attractive yield, AND, their business model is much more conservative than the infamous, "too big to fail" money center banks.

However, before you start snoring, take a look at these impressive Q2 '17 growth numbers for the community bank sector:

(Source: FDIC)

That being said, though, it'd be nice if we could squeeze a bit higher of a yield out of our community bank holdings - they often yield in the 2% - 3%+ range, which is OK, but we've often wished there were some higher yielding community bank alternative.

It turns out that there is a higher yield investment available:

StoneCastle Financial Corp. (NASDAQ:BANX) has a very unique business model. It lends money to community banks throughout the US, through preferred equity, subordinated debt and common equity investments and gives income investors a secure, high yield exposure to them. These banks may be much smaller than the money center banks, but they make up for it by having a strong market share in their towns, which can run up to 70% in some cases. (We'll refer to the company as SCFC, BANX, OR StoneCastle in this article.)

A big part of SCFC's strength in the community banking sector comes from its alliance with StoneCastle Asset Management, which is the investment advisor for SCFC. StoneCastle Asset Management is run by SCFC's CEO Josh Siegel and George Shilowitz, who is the Chairman and President of the

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Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.

This article was written by

Double Dividend Stocks profile picture
Target 5-10% yields backed by solid earnings for better portfolio income.

Robert Hauver, MBA, was VP of Finance for an industry-leading corporation for 18 years, and publishes SA articles under the name DoubleDividendStocks. TipRanks rates DoubleDividendStocks in the Top 25 of all financial bloggers, and Seeking Alpha rates us in the Top 5 of several categories, including Dividend Ideas, Basic Materials, and Utilities. 

"Hidden Dividend Stocks Plus", a Seeking Alpha Marketplace service, which focuses on undercovered and undervalued income vehicles. HDS+ scours the world's markets to find solid income opportunities with dividend yields ranging from 5% to 10%-plus, backed by strong earnings.

Disclosure: I am/we are long BANX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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