Old National Bancorp's Preferred Stock Series A Crosses Above 7% Yield Territory

Old National Bancorp's 7.00% Dep Shares Non-Cumul Preferred Stock Ser A (ONBPP) traded with a yield exceeding 7% on Tuesday, significantly above the 6.38% average for financial preferred stocks, and at a 1.56% premium to its liquidation preference, contrasting with the sector's typical discount. While offering an attractive yield, investors should note its non-cumulative dividend feature, which means missed payments are not recoverable, a critical consideration for assessing the security's risk profile.

Analysis

Old National Bancorp's Series A Preferred Stock (ONBPP) is exhibiting superior performance metrics compared to its sector peers. The security's yield has surpassed the 7% mark, based on its $1.75 annualized dividend, which is notably higher than the 6.38% average yield for the financial preferred stock category. Furthermore, ONBPP trades at a 1.56% premium to its liquidation preference value, in stark contrast to the broader financial sector, where similar securities trade at an average discount of 5.59%. This valuation premium suggests strong investor confidence in this specific issue relative to its peers. However, a critical risk consideration is that the dividends are non-cumulative, meaning the company is not obligated to pay any missed dividends, exposing investors to a permanent loss of income should the bank face financial stress. The daily price action, with ONBPP up 0.2% and the common stock (ONB) up 0.6%, indicates positive short-term sentiment.

Key Decisions for Investors

• Investors seeking higher income may find ONBPP's 7%-plus yield attractive relative to the sector average, but this must be weighed against its valuation premium.
• The non-cumulative nature of the dividend is a significant credit risk; potential investors must be confident in Old National Bancorp's ongoing ability to service these payments, as any missed dividend is not recoverable.
• Given that ONBPP trades at a premium to its liquidation value while the sector average is at a discount, investors should consider that the security may be fully valued, potentially limiting further capital appreciation and posing a risk of mean reversion.