We added more to our position in Merchant’s Bank (MBVT) today as the price dipped below our buy price of $26.85.
Merchant’s Bank is our largest holding by far as we find the price attractive, especially at $26.85/share, which put the PE around 10 and the dividend yield at 4.17%.
As stated in the past, Merchant’s Bank is very stable, risk-adverse with a great history of dividend payments. Even during the recent economic problems, Merchant’s continued to thrive as many of their larger banking peers floundered.
This make for a very reliable income-producing investment, which makes it a great core holding.
This particular purchase will most likely be sold once the price hits $28-$29/share as we already have so much in the stock and would like to still keep diversified, but when the price dips this low it will most likely not stay there very long, which makes for a great trade.
And if the price should stay down, then the worse case scenario is you hold it and make 4.17%.
As I predicted the price of Merchant’s Bank (MBVT) has recovered from the unreasonable drop last week. Since I bought the additional shares last week with the whole intention of selling once the share price recovered to sold those shares today for a quick 7.49% gain.
Again, I am still keeping the bulk of my position, which is still my largest position.
Banking stocks are down a bit today, including Merchant’s Bank (MBVT), as a result of a Massachusetts court decision against Bank of America (BAC) which voided a couple foreclosure sales the bank made, which violated Massachussetts law.
Banks such as Bank of America were buying and reselling packaged mortgage-backed securities, and because the mortgages got passed around so much, it was difficult to keep track of who actually held the mortgage at any given time and the law in Massachussetts requires that any foreclosure sale be initiated by the party holding the mortgage and when these two particular forclosures happened, apparantly Bank of America didn’t have the right to do it.
Merchant’s Bank is based in Vermont so what happens in Massachussetts doesn’t matter to Merchant’s Bank, unless of course in the long term our state adopt similar laws.
However, Merchant’s Bank never engaged in the risky sub prime mortagage market that banks such as Bank of America did. Merchant’s keeps most of the loans they write and therefore are more carefull and have less problems with foreclosure than most of the large banks.
It is common for a problem with an industry’s largest player to affect the share price of all players in an industry. People hear something bad about the big player they automatically sell any positions they have in any player in the industry.
Combine this along with the fact that Merchant’s Bank’s PE is currently below 10, a dividend well over 4%, and growing earnings makes the stock very attractive today.
Since I already have a large percentage of my investments in Merchant’s Bank I took the opportunity to add more to my position today but with the understanding that this will be a short term trade. I believe that within a short term, the fall in the share price today will be reversed at which time I will sell the shares I purchased today.