In his last purchase article, Lanny alluded to the fact that I may have purchased the same stock as his. Well, Lanny was right and great minds think alike. We have been talking about this purchase for several weeks and we finally just decided to buy it! While my rationale may have been slightly different than Lanny’s, here is why I added to my stake in Norwood Financial (NWFL).
Lanny’s article did a great job summarizing the background of the bank and some of the financial highlights of the company. So to prevent redundancy, I won’t dive into the background too much in this article. So please, if you want to learn more about the bank and some additional metrics, please see his purchase article from earlier in the week! Instead, I’ll focus more on my thought process and rationale for the purchase. Here are some of the reasons why I purchased the stock.
- Lanny was spot on in his article about this point. The community banking industry is consolidating for a variety of reasons (increased regulatory burden, lack of a succession plan, etc.) and smaller institutions are prime for the picking. Typically I would not purchase a stock based on the fact that it may be acquired in the future, I’m not a spec investor. However, in this instance, the companies current yield and financial performance are strong enough to justify holding the stock in my portfolio. So while I’m waiting for something to happen with the stock, I’ll collect a strong yield and continue to DRIP. A win-win in my opinion.
- A quick financial analysis. The company’s yield is greater than my portfolio’s current weighted average yield, which is always a plus. In addition, the company has performed very well and consistently over the years, maintaining a ROA of over 1. Those were the two factors that I was focusing on when making my decision to purchase the stock earlier in the year and the metrics are still holding up. Bottom line is that the company is consistently generating earnings and cash flow. See Lanny’s article for some other metrics about the company!
- This reason is less metric driven. One of my annual goals in 2015 is to max out my Roth IRA contribution before the end of the year. At the beginning of the month, I needed to contribute $1,470 to accomplish this month. When I reviewed my Roth IRA holdings in conjunction with my major mutual fund analysis and potential re-racking, I identified two positions that could I could dividend the $1,470 and beef up my current holdings. Norwood Financial was one of those stocks and well, you will have to wait later in the month to see the other company I identified. The stock price hasn’t moved since my initial purchase and heck, without re-invested dividends I would probably be showing a loss. So I decided to add to my stake in an effort to knock out this goal and build a stronger Roth IRA.
- This point parlays off of the last bullet point. Lanny and I are constantly debating whether we should cast our net wide and invest in many stocks or if we should build massive stakes in foundation companies. Over the years, I have implemented both strategies based on how much capital I have had available at the time or purchase or my mood at that moment in time. At times, I have added to a stake in multiple short spurts like I have done with IBM and Norfolk Southern (which just shot down their recent acquisition) and at other times, I have saved up to establish a massive position in a company and call it a day. The last time I did this was when I purchased MMM. Well, when I initially purchased Norwood Financial earlier in the year, I only purchased 18 shares. Last month, this position produced a meager $5.70 in quarterly dividend income, which isn’t really moving the needle for me considering the high yield. So I wanted to add to my position while accomplishing my goal as discussed in the last bullet. A win-win in my opinion.
- Lastly, who the heck does Lanny think he is. Did he really think I was going to let him come in, invest in a stock that I hold, and not do anything about it? Heck no! Lanny made a move and I needed to respond. Unfortunately, his stake in now larger than mind since I didn’t have enough capital available and it would have ruined my next purchase. However, you bet your you know what that I was not going to just sit on the sidelines and watch this happen without acting myself! Any you know what, I purchased the stock at a lower price. Take that Lanny! You may own more, but my cost basis is lower. Good luck sleeping at night knowing that.
All in all, I purchased 25 shares of Norwood Financial Group this week and added $31 in forward dividend income to my portfolio. I now proudly own 43.5715 shares of this community bank and will receive $54 in income annually from them. Not a bad day at thew office and I am excited knowing that I continued to build a position in a company that I really like in my portfolio.
What are your thoughts about my purchase? Do you own Norwood Financial or any other community bank? If not, have you thought about it before? Do you purchase stocks in small bunches or do you prefer to buy one massive position? IF you were me, would you have purchased this stock or a different stock that is discounted? Can you guess what stock I am planning to purchase next?
-Bert