Recent Purchase – October

Generally I prefer to post my portfolio changes as one monthly post but I do allow for exceptions.  One such exception is my purchase yesterday of Hawthorn Bancshares.  This is a company that has not appeared in any DGI portfolio that I’m aware of – and I have 206 DGI portfolios with 919 companies resident in a database.  There are a host of reasons why it would fail a screen –

  • 16 quarters without a dividend increase
  • reduced their dividend in 2008/2009
  • like many banks, required TARP
  • payout ratio is a little high
  • thinly traded
  • 1.5% yield

Any or all of these reasons would be reason enough to take a pass as I initially did as well.  But something about this one kept gnawing at me.  They repaid their TARP loan and repurchased US Treasury warrants in June 2013.  They strengthened their balance sheet over 2014 by selling off foreclosed property.  A gamble still – yes – but less now than before.

What sold me was what Yahoo didn’t reveal.  Yes it currently pays a nickel per share per quarter, translating to about 1.5% per year.  For the past four years they have paid a 4% stock dividend in July.  Stock dividends – unlike cash dividends – are taxed only at the time of sale.  Assuming they continue this process, the 1.5% cash PLUS the 4% stock = 5.5% overall return with an increasing YOC via the stock dividend.

Because it is thinly traded, the spreads are all over the map.  I would suggest using limit orders if choosing to purchase this issue.

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