Everbank: Preferred Pick for Income

04/22/2014 9:00 am EST


Jack Adamo

Editor, Jack Adamo's Insiders Plus

When buying preferred stocks, we're more interested in how solid the company is and how safe our dividend is, explains Jack Adamo, editor of Insiders Plus.

EverBank Financial Corp. (EVER) provides financial products and services to individuals, as well as small- and medium-sized businesses in the United States.

It does most of the things other banks do, but also does a nice business in selling Certificates of Deposit in foreign currencies. This gives average investors a way to take advantage of foreign currency moves without venturing into the world of currency trading, which is dominated by professionals.

The common stock sells at a P/E of 19, which looks like quite a bargain, considering the company grew earnings last year by 70%. However, the common pays a miniscule dividend.

Instead, we are buying the EverBank Financial Corp. Series A 6.75% Non-Cumulative Preferred (EVERPRA), which has a current yield of 7.15% and a yield to redemption of 7.8%, if redeemed in January 2018, when it first becomes eligible.

I think it's unlikely it will be redeemed at that time, but if it is, it's a good deal for us. Strong earnings growth is nice, and, in 2013, net income covered the preferred dividend more than 13 times.

At yearend, EverBank exceeded all regulatory capital requirements and was considered to be "well-capitalized" by bank regulators with a Tier 1 leverage ratio of 9.0%, a total risk-based capital ratio of 14.3%, and a Tier 1 risk-based capital ratio of 13.8%.

Those numbers probably don't mean much to you, but I assure you, they are all very good. The dividends are safe and they are "qualified" under current US tax law, meaning they are entitled to reduced tax rates.

EverBank Series A 6.75% Non-Cumulative Preferred is a buy up to $25. Buy the stock only with a limit order, never a market order, as the shares are thinly traded.

Also note that the name may be different with your broker. Preferred stocks have no set symbol and the names are so long and involved they are always abbreviated.

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