Well…well…well….it looks like January ended the same way it started for me….with buying a stock!  At the beginning of the month I was able to add to my stake in ADM, a darling of the dividend investors community of late due to drop in stock price over the last few months.  And after the boom that occurred at the end of the month, I was happy I purchased shares in ADM when I did.   After my ADM purchase, there was a little bit of a lull period when I sat on the sidelines as the madness unfolded.  Until the end of the month, when I accidentally stumbled on a great opportunity.  You guessed it, I purchased some additional shares of one of my Roth holdings Citizens and Northern Corporation (CZNC).  See why I purchased more shares in this community bank. 

It is no secret that Lanny and I have a knack for buying shares in community bank stocks with attractive yields.  Both of us have added to our stake in Norwood Financial recently (Lanny here and me here)  The banking community is in a state of consolidation and many great community banks are getting acquired.   So investing in these banks allows us to potentially play for an acquisition while collecting a nice dividend yield along the way.  It is important to note that we are only investing in banks we feel are solid and reward us with a nice dividend check, so this is not a pure speculation play by any stretch of the mean.  Heck, we aren’t buying stocks just for the sake of buying them and we would have no issues sitting on the sidelines rather than investing in a poor performing bank just because it may be acquired.

Truth be told, I have been looking to add to my position in CZNC for a while now.  In fact, this has dated back to December when I became frustrated that my stake and dividend check from the bank were so small.  At the time, I owned $500 and was receiving just over $7 per quarter from the bank.  Lanny’s article about investing at least $3,000 in a company inspired me to look to increase some of my positions.  The article seemed to capture my emotion at the right time and I became determined to add to my stake in the bank.   I refused to pay more than $20/share to increase my position, so I patiently waited for over a month to add to my stake.

Then, in the middle of January, the company released their earnings for the quarter ended December 31 and declared their regular quarterly dividend with an ex-dividend date of 1/28/16.  The earnings didn’t show anything spectacular or terrible.  Just another consistent quarter. There were a few things from the release that I really liked.  Their assets remained about the same, the bank experienced loan growth during the quarter, and their non-performing loans continued to decrease to levels below the rest of the market.   The bank’s return on assets is over 1.3%, which is great in the industry, and the dividend yield continued to hover around 5%.   After the earnings release, I was definitely interested in adding to my position if the price continued to fall.  And this is where the story became fun.  

As we mentioned in our latest Blog Goals post, we have been pretty busy flying through our busy season.  An unfortunate part of the CPA-life for sure and man I cannot wait for it to be over!  Especially since my wedding is in May!  Over this month there were many days where I didn’t get the opportunity to actively monitor the market  and specifically, the stocks on my watch list.   I had my eye on three of my 5 “Always Buy stocks“ a few weeks ago but have backed off purchasing one of these stocks due to the recent appreciation.  On the day before CZNC’s ex-dividend date, I happened to check the stock price and BAM! It was below my targeted price of $20.   It took me a second to process how lucky I was to have realized this the day before the ex-dividend date.  Once I gathered myself and my thoughts, I logged onto Sharebuilder and initiated a purchase.  Quick and decisive.  Just like that, I purchased a round 50 shares of CZNC, adding $52 in forward dividend income to my portfolio.   In total, I now own 76.65 shares of the bank and will receive at least $79.72 in dividend income from the company annually.  The best part of this purchase is that I will now capture 4 dividends from the company, which is huge since I should receive ~1 share per quarter.   The dividend engine should be rolling along now.

Truth be told, it wasn’t just a coincidence that I was looking at the price of the two community bank stocks that I own that day.  As I mentioned earlier, there is consolidation in the community banking industry.  This last week there were two major mergers announced in the Midwest banking community that inspired me to look to add to my positions.  First, Huntington Bank in Columbus Ohio announced the purchase of FirstMerit Bank in Akron Ohio.  The newly formed company will create one of the 20 largest banks in the country.  What sucks is that FirstMerit’s headquarters was in Lanny’s childhood backyard.   This was the highest profile merger of the week.  Second, two Michigan banks much closer in size to CZNC agreed to a merger of equals.   This dose of reality reminded me just how quickly the consolidation of the industry is occurring and how a merger announcement can appear out of thin air.  How many of us had any idea that Kraft and Heinz were going to merge until the plans were announced to the public last year?   These announcements made me think that if I have a target price in mind and an opportunity presents itself, I have to run through the door before it is too late.

The month ended very strong for me and I couldn’t be happier that I was able to add to my position in CZNC.  Patience paid off for me and waiting over a month allowed me to buy at the price I wanted while still capturing all four dividends in 2016.  A win in my book.

What are your thoughts on my purchase of Citizens and Northern?  Do you own any community banks?  Are there better opportunities available in the marketplace?  If so, who is on your watch list?   What stocks would you recommend for my next buy?

Bert