I'm Selling Prudential Bancorp For Something Better

Earlier this year my Special Situations portfolio bought shares of PrudentialBancorp . The bank completed its second-step conversion in October to become a fully public institution. At the time I bought the bank it was trading at a cheap valuation - about 73% of tangible book value - and it looked like a solid pick for the next few years. But it's time to sell the stock because I've found an excellent value somewhere else and I need the cash.

A Philadelphia cheapie
Prudential is well positioned for the future, and it should perform well for investors from here. As I noted when I originally bought the bank in April: "The bank relies heavily on "stickier" sources of financing such as checking and savings, with about 60% of deposits. The remaining 40% are time deposits. I like to see the high reliance on stickier funding." This "stickiness" should make the bank more attractive to an acquirer. And at a price to tangible book value of 81% today, you're buying with a margin of safety built in. Also, in October the company should be free to initiate stock buybacks, which should drive book value per share higher.

It was only in May that I lambasted management's poor excuse for a dividend, and I stand by that statement. But my decision to sell today has nothing to do with that. So while I'm deciding to sell the stock now, it's purely for reasons of portfolio management. I'm still keeping Prudential Bancorp on my watch list, so if and when I have some excess cash to deploy in the portfolio, I will definitely give the bank another look.

Foolish bottom line
So my decision to sell has little to do with the bank's operations and all to do with another great opportunity I've found. In fact, this new stock yields 9% and I think it could return 50% over the next year. That's huge upside and the massive dividend should buoy the stock even in tough times. My Special Situations portfolio will be buying this high-yield stock later this week. If you want to be the first to know what it is, follow me on Twitter: @TMFRoyal. And check out my dedicated discussion board.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

The article I'm Selling Prudential Bancorp For Something Better originally appeared on Fool.com.

Jim Royal has no position in any stocks mentioned. The Motley Fool owns shares of Prudential Bancorp of PA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story