This analysis delves into Merchants Bancorp's trio of preferred stocks – MBINL, MBINM, and MBINN – dissecting their individual call protection features and yield profiles. We evaluate Merchants Bancorp's financial health, scrutinizing its net income coverage of preferred dividends and its total common equity, noting a slight decline from previous years. The study also examines the differing call risks among the preferreds, with MBINL emerging as the most resilient. Ultimately, MBINL is recommended as a 'Buy' due to its robust call protection and attractive yield in comparison to similar offerings from regional banks.
Merchants Bancorp Preferred Stock: A Comprehensive Review and Investment Outlook
In the financial sphere, Merchants Bancorp (MBIN) recently brought its preferred stock offerings into the spotlight, prompting a fresh review of their investment viability. The bank currently offers three distinct preferred stocks: MBINL, MBINM, and MBINN, each possessing unique characteristics concerning call protection and yield potential. This detailed analysis, building upon insights from over a year ago, aims to provide an updated perspective for investors.
A critical aspect of evaluating these preferred stocks is Merchants Bancorp's financial resilience. While the bank demonstrates an adequate capacity to cover preferred dividends, with net income exceeding requirements by 5.3 times, and maintaining a total common equity ratio of 3 times, these figures indicate a slight moderation compared to earlier periods. This subtle shift necessitates a closer look at the implied risks for preferred shareholders.
Among the three, MBINL stands out for its superior call protection, offering investors a longer safeguard against early redemption. In contrast, MBINN's relatively low yield-to-call suggests market expectations for it to remain outstanding, implying a perceived lower risk of being called back by the issuer. Conversely, MBINM carries a higher coupon rate, which, while attractive, inherently increases its call risk, as the issuer might find it advantageous to redeem and re-issue at a lower cost if market conditions allow.
For investors formulating their portfolio strategy, it is paramount to meticulously weigh these factors: call risk, the issuer's financial robustness, and the adequacy of dividend coverage. It is also crucial to note that Merchants Bancorp's preferred shares are non-cumulative, meaning any missed dividends are not accrued, and carry a Ba3 rating from Moody's, reflecting a certain level of credit risk.
Considering the current yield metrics, the yield-to-call (YTC), and most importantly, the extended call protection period offered by MBINL, it garners a 'Buy' recommendation. Its yields are not only competitive within Merchants Bancorp's own offerings but also stack up favorably against preferred stocks issued by other regional banks. This makes MBINL an appealing option for income-focused investors seeking a blend of attractive returns and mitigated call risk in the current market landscape.
The intricate world of preferred stocks demands a nuanced understanding of various financial metrics and market dynamics. This updated review of Merchants Bancorp's preferred offerings underscores the importance of diligent research and strategic decision-making. By carefully assessing call protection, financial health, and relative yields, investors can make informed choices that align with their investment objectives. The 'Buy' rating for MBINL serves as a testament to its compelling value proposition in a challenging yet opportunity-rich market for preferred securities.