Tim Melvin of Investors Alley has released a new teaser about his “#1 bank dividend stock,” which he says is trading at “one of the deepest discounts” he’s seen in his 34 years of investing. And according to Melvin, it pays an 8% dividend yield.
“My top bank pick produces a nice nearly 8% dividend and trading at one of the deepest discounts in the banking industry.”– Tim Melvin (source: https://www.investorsalley.com/landing/the-perfect-dividend-bank-stock)
Like all the other stock teasers I come across, this teaser is essentially an ad for a service. In this case, it’s a pitch for Melvin’s new service called The 20% Letter ($49 per year).
Still, I found it to be pretty informative overall.
In short, Melvin lays out his thesis on the banking industry, explained why he’s bullish on smaller bank stocks in the current environment (rising rates), and provided numerous hints about his top pick (aka the “perfect dividend stock”). He also teased a real estate stock he’s interested in, which he calls the “perfect real estate stock.”
I’m not a member of his service (yet), but I did look into his clues to see what company he might be teasing, and in this post, I’ll show you what I found.
Let’s start by discussing Tim Melvin’s overall thesis. Then, I’ll show you what stock I think he’s teasing and give you a quick overview of the service he’s pitching.
Tim Melvin’s “Perfect Dividend” Teaser Unpacked
Tim Melvin’s presentation began with a photo of a small “beat up bank,” suggesting that investing in “tiny banks” like this could’ve helped investors turn $25k into over $4 million in the space of 22 years.
“Could a beat up bank like this really have made you millions over the last 22 years?
“Guys, I’m not kidding…
“These eyesores are cash cows. There are 174 of them throwing off big money as the Federal Reserve raises interest rates.
“I’ll show you the best bank to buy in this bear market for just $16
“Average returns buying these tiny banks would’ve turned $25,000 into $4.1 million despite 3 recessions, real estate crashes, once-a-generation pandemic, and now rapid inflation.”
That’s a pretty bold statement to make right off the bat, but as the presentation progressed, Melvin laid out his thesis in quite a logical, non-hyped manner.
In short, Melvin made the case that the “buy and hold” strategy is “dead” and that the market may struggle to even outpace the rate of inflation in the years ahead.
Specifically, he talked about how the market could potentially average 3-5% returns over the coming years, which isn’t much to get excited about.
And worse, if inflation sits at around 5-8%, he pointed out that you could end up seeing “negative returns” on an inflation-adjusted basis.
Melvin also pointed out that in an era of rising rates and monetary tightening (which we are in right now), growth stocks don’t tend to fare too well (as we’ve seen) and suggested that a better alternative is the “little banks” he’s recommending.
“Remember, buy and hold is not an option anymore.
“You’re risking 3-5% returns… or even negative returns.
“Fortunately, these little banks do extremely well when the Fed is raising rates or keeping them steady.
“82% of the time buying little banks, you stomp the market’s returns.
“You only get ‘beat’ when Fed lowers interest rates quickly
“*that’s NOT happening for a few years*”
Of course, nobody has a crystal ball.
So, even though Melvin made a compelling case against the “buy and hold” strategy and growth stocks (i.e., tech and biotech), that doesn’t mean investing in the so-called “little bank stocks” he’s teasing is a good idea or that they will make you lots of money.
Why is he so bullish on banks?
Tim Melvin goes into a lot of detail on his bank stock thesis in the presentation, so it’s probably best to read that to get his take directly. But one of the main aspects of his thesis revolved around how important banks are to the economy.
“They control the money flow into the economy. Businesses rarely open without banks being involved. No stock hits the market without a bank. 70% of folks aren’t buying houses without a bank.
“If a country was a human body, the bank would be the brain. As they direct all the movements of everything else.
“You turn off money. You turn off a country.
“Banks have been in existence since 1,800BC in Babylon. They aren’t going away.”
It’s hard to argue with that logic.
As Melvin points out, banks may not be the most exciting investment, but they are essential to virtually everything in the economy, even during times of recession.
However, just because banks have always been essential doesn’t mean they always will be. It’s entirely possible (in my humble opinion) that traditional banks become less important in the decade(s) ahead as new technologies make them less relevant.
Nevertheless, aside from that point, Tim Melvin pointed out several reasons he likes small bank stocks right now.
For instance, he talked about how he believes they are “heavily undervalued,” that the banking industry is consolidating, that banks are buying back stocks “in droves,” and that they can thrive when interest rates are rising (even while other stocks fall).
All in all, it was a pretty interesting read.
And while Melvin didn’t reveal his top bank stock pick in the presentation, he did share numerous clues about it, which led me to what I think is his pick.
Tim Melvin’s “Perfect Dividend Stock” Revealed
Tim Melvin shared numerous clues about his top pick in the presentation, including when the bank was founded (1938), its stock price (“less than $16”), its dividend yield (“8.2%”), its PE ratio (“around 11”), where it’s located (mostly Ohio and Florida), and how many branches it has (39). He also said that it’s “almost entirely focused on mortgages.”
Here’s a summary of his clues:
“The first bank you’ll buy today started in this rundown building in 1938 during the end of the Great Depression
“From this building, a husband and wife team built a small bank to help immigrants of their European heritage.
“The business is almost entirely focused on mortgages.”
“This bank isn’t a monster.
“Only 39 branches total across just Ohio and Florida.”
“They’re paying a 8.2% dividend yield… and that’s going to keep skyrocketing.
“The perfect dividend bank stock is trading for less than $16”
That’s quite a bit to go off, but none of those are what initially led me to his pick.
Instead, I started by looking into the photo of the “beat up building” Melvin shared in the presentation since he said that this was “exactly” like the bank he was teasing.
Long story short, after doing a reverse image search on Google of that photo, I came across an article about the Third Federal Savings and Loan bank.
Not only did the photo he used match the one in the above article, but the first paragraph of the article states that this bank was founded in 1938, matching Mevin’s hint.
The article also states that this bank “has 46 branch offices in Ohio and Florida,” which is a bit more than Melvin said, but it’s possible they’ve expanded since he first put the presentation together.
In any case, from there, I looked at the company’s stock price and dividend and found that they (roughly) line up with what Melvin said.
The stock, which trades as TFS Financial Corporation (ticker: TFSL), is currently sitting at around $13 a share as of writing (September 2022).
And as for the dividend, it’s at 8.65%:
So, Tim Melvin’s “perfect dividend stock” appears to be TFSL.
I can’t guarantee that my guess is right here because, as mentioned, I am not a member of The 20% Letter. And the only way to know what his pick is (for sure) is to join his service and see the report he created called “This Tiny Bank is the Perfect Dividend Stock.”
However, based on the clues he shared, this looks like a match.
Also, aside from that company, he teased three other companies in the presentation.
Two of them are banks that he believes could be taken over in the next 24 months, although I’m not sure what those are after looking into the clues.
And finally, Tim Melvin teased what he calls “The Perfect Real Estate Stock.” And as I’ll now explain, I think I know what this one is, given he dropped some fairly tangible hints.
Recommended: Go here to see my #1 rated stock advisory of 2022
Tim Melvin’s “Perfect Real Estate Stock”
Here’s a summary of what Tim Melvin said about his real estate pick:
“Much like bank stocks…
“Real estate is something that’s not going away. It’s imperative for society as everywhere you look… someone owns it.”
“Real estate will always be a store of value, cashflow and wealth.
“That’s why REITS are the cash cows I’m always happy to invest in.
“And I have the “Perfect Real Estate Dividend Stock” to share with you right now.
“This is a REIT in the healthcare space and yielding a nice 7.75%.
“Even better, shares are trading at just 11x funds from operation which is far below other healthcare REITs.
“The REIT leases buildings to medical practices and healthcare systems. It currently has 171 buildings with a 97% occupancy rate.”
“Plus Goldman Sachs and renowned investor, Paul Tudor Jones’ firm, Tudor Investments, just bought up big positions. “
Based on those clues, Tim Melvin’s real estate pick appears to be Global Medical REIT Inc. (GMRE), a Real Estate Investment Trust (REIT) that acquires specialized healthcare facilities and leases those facilities out in order to generate revenue.
The way I discovered this pick was by looking into healthcare REITs that own 171 buildings, as that was a pretty specific clue. And once I found that Global Medical REIT Inc. matched that description, I looked into the other clues, which also seem to line up.
- Firstly, according to the company’s second-quarter 2022 financial results, its portfolio was 96.5% occupied as of June 30, 2022, which is down from 97% as of March 31, 2022, due to “certain properties acquired” during the second quarter. So that clue’s a match.
- Second, the company’s annual dividend yield is currently over 10% as of writing, but the stock has traded down significantly this year, so it was likely lower when Melvin wrote this pitch. I can’t be certain of that, but that is my best guess.
- Third, both Goldman Sachs and Tudor Investments appear to have a stake in this company.
So, Tim Melvin’s “Perfect Real Estate Dividend Stock” appears to be GMRE.
In the next section, I’ll give you a quick overview of the “20% Letter” service Melvin’s pitching since this is the service you’d need to join to find out if my guesses are correct and get all the details about his recommendations.
What Is The 20% Letter?
The 20% Letter is a stock advisory service run by Tim Melvin of Investors Alley focused on dividend-paying stocks. And according to Melvin, the idea behind the service is to provide subscribers with recommendations that can “deliver 20% annualize total returns.”
“The premise of The 20% Letter is simple: provide you with stocks that through a combination of dividend payouts and share price growth to deliver 20% annualize total returns.”
How much does it cost?
The cost of a one-year subscription to The 20% Letter is $49, and according to the Investors Alley website, it comes with a 365-day refund policy.
For $49, subscribers get the research reports detailing Tim Melvin’s top dividend and real estate picks, as well as numerous other companies he’s bullish on. And each month, Melvin issues a new newsletter detailing his latest research on the stock market and economy.
Is it worth it?
I am not a member of this service, so I can’t tell you how worthwhile it is or not. But I did spend some time researching it as part of looking into his stock picks, and based on what I’ve seen, it looks like a potentially worthwhile service.
Why? Because not only does Tim Melvin have over three decades of experience, but he (apparently) has predicted numerous market tops and bottoms in recent years and seems to have recommended some great stocks.
Not to mention, I didn’t find his pitch to be too overhyped overall, which is a big one for me personally. I’ve seen a lot of different sales pitches, and all too often, the ones that are too heavy on the marketing hype turn out to be duds.
None of that means that Melvin’s 20% Letter service will make you money. The simple reality is that no service can guarantee you that.
But I do intend to sign up for this soon and put together a review detailing my experience with it. And when I do, I’ll come back and share a link to it here.
Update (October 21, 2022): I recently joined The 20% Letter and just published a review of it, which you can see here. Overall, I’m a fan. Although one thing I should note is that I wasn’t able to join for $49 (it cost me $79), so the $49 price must’ve been part of an old promo that is no longer running.
Tim Melvin’s latest pitch centers around the idea that bank stocks are potentially the best play right now, given rising interest rates and inflation. Melvin also seems to think that REITs could do well in this environment, which admittedly somewhat surprised me.
I can only speculate as to whether or not he’s right and, if so, what stocks will fair best. But based on my research, his “perfect dividend stock” (aka “tiny bank stock”) pick is TFSL, and his “perfect real estate” pick is GMRE.
He also teased a couple of other banks that he believes “could be acquired in the next 24 months,” but given the lack of clues, I’m not sure what those are.
Still, I’m pretty confident I’ve nailed the other two picks. And those were the main ones. So I hope you found my sleuthing helpful, and thanks for reading!