Critical Analysis: Timberland Bancorp (NASDAQ:TSBK) versus Waterstone Financial (NASDAQ:WSBF)

Waterstone Financial (NASDAQ:WSBF) and Timberland Bancorp (NASDAQ:TSBK) are both small-cap finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their dividends, institutional ownership, risk, earnings, profitability, analyst recommendations and valuation.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for Waterstone Financial and Timberland Bancorp, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Waterstone Financial	0	1	0	0	2.00
Timberland Bancorp	0	0	1	0	3.00

Dividends

Waterstone Financial pays an annual dividend of $0.60 per share and has a dividend yield of 3.8%. Timberland Bancorp pays an annual dividend of $1.12 per share and has a dividend yield of 3.3%. Waterstone Financial pays out 45.1% of its earnings in the form of a dividend. Timberland Bancorp pays out 30.4% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Timberland Bancorp has raised its dividend for 13 consecutive years.

Institutional and Insider Ownership

62.7% of Waterstone Financial shares are owned by institutional investors. Comparatively, 65.5% of Timberland Bancorp shares are owned by institutional investors. 7.4% of Waterstone Financial shares are owned by company insiders. Comparatively, 3.7% of Timberland Bancorp shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Valuation and Earnings

This table compares Waterstone Financial and Timberland Bancorp”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Waterstone Financial	$133.68 million	2.16	$18.69 million	$1.33	11.74
Timberland Bancorp	$78.42 million	3.39	$24.28 million	$3.68	9.16

Timberland Bancorp has lower revenue, but higher earnings than Waterstone Financial. Timberland Bancorp is trading at a lower price-to-earnings ratio than Waterstone Financial, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Waterstone Financial and Timberland Bancorp’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Waterstone Financial	12.08%	7.02%	1.08%
Timberland Bancorp	24.19%	10.79%	1.40%

Volatility and Risk

Waterstone Financial has a beta of 0.81, meaning that its stock price is 19% less volatile than the S&P 500. Comparatively, Timberland Bancorp has a beta of 0.53, meaning that its stock price is 47% less volatile than the S&P 500.

Summary

Timberland Bancorp beats Waterstone Financial on 11 of the 16 factors compared between the two stocks.

About Waterstone Financial

Waterstone Financial, Inc. operates as a bank holding company for WaterStone Bank SSB that provides various financial services to customers in southeastern Wisconsin, the United States. It operates in two segments, Community Banking and Mortgage Banking. The Community Banking segment offers consumer and business banking products and services, such as deposit and transactional solutions, including checking accounts, online banking and bill pay services, money transfer services, as well as credit, debit, and pre-paid cards; investable funds solutions comprising savings, money market deposits, individual retirement accounts, and certificates of deposit; residential mortgages, home equity loans and lines of credit, personal and installment loans, real estate financing, business loans, and business lines of credit; and fixed and variable annuities, insurance products, and trust and investment management accounts. It also provides transaction deposits, interest bearing transaction accounts, demand deposits, non-interest-bearing demand accounts, and time deposits; secured and unsecured lines; commercial real estate construction loans; term loans for working capital, inventory, and general corporate use; and personal term loans and investment services. The Mortgage Banking segment offers residential mortgage loans for the purpose of sale in the secondary market. It also invests in a portfolio of securities include mortgage-backed securities, government-sponsored and private-label enterprise bonds, collateralized mortgage and municipal obligations, and other debt securities. The company was formerly known as Wauwatosa Holdings, Inc. and changed its name to Waterstone Financial, Inc. in August 2008. The company was founded in 1921 and is based in Wauwatosa, Wisconsin.

About Timberland Bancorp

Timberland Bancorp, Inc. operates as the bank holding company for Timberland Bank that provides various community banking services in Washington. It offers various deposit products, including money market deposit, checking, and regular savings accounts, as well as certificates of deposit. The company also provides one-to four-family residential, multi-family, and commercial real estate loans; and construction lending products, such as custom and owner/builder, speculative one- to four-family, commercial, multi-family, land development, and land development. In addition, it offers consumer loans comprising home equity lines of credit and second mortgage loans, automobile loans, boat loans, motorcycle loans, recreational vehicle loans, savings account loans, and unsecured loans; and commercial business loans. Timberland Bancorp, Inc. was founded in 1915 and is headquartered in Hoquiam, Washington.