Security Federal Corporation (SFDL): A Dividend Anchor in Undervalued Regional Banking

In a market rife with volatility, few sectors offer the stability of regional banking—especially when paired with a dividend track record as unshakable as Security Federal Corporation’s (SFDL). With 137 consecutive quarterly dividends since its conversion to stock form in 1987, SFDL has cemented itself as a pillar of consistency. Now, amid a regional banking sector trading at discounts to broader markets, SFDL presents a rare opportunity for investors seeking both income and growth. Let’s dissect why this stock is primed to outperform.

Dividend Reliability: A 38-Year Unbroken Streak

SFDL’s dividend history is a masterclass in steady growth. Since 2020, its quarterly payout has risen from $0.13 to $0.15, with a 7.1% hike in February 2025 and a surprise $0.10 special dividend in March—boosting its annualized yield to 2.0%. This outpaces the 1.4% yield it offered in 2020, reflecting deliberate capital management. Crucially, its payout ratio remains a conservative 19% of earnings, leaving ample room for future hikes. With net income surging 50% year-over-year to $0.81 per share in Q1 2025, SFDL’s dividend is not just sustainable but expansible.

Valuation: A 10% Discount to Peers, With Higher Quality

The regional banking sector trades at an average P/E of 13.4x, yet SFDL’s trailing P/E is just 9.8x—a 27% discount. Its price-to-book ratio of 0.9x is even more compelling: it means investors can buy a dollar of SFDL’s equity for 90 cents, a stark contrast to the sector’s average of 1.2x. . This undervaluation is despite SFDL’s superior metrics: a 18.90% CET1 capital ratio, robust loan growth (+12.5% net interest income in Q1 2025), and non-performing assets at a negligible 0.46% of total assets. In a sector where liquidity and capital strength matter most, SFDL’s balance sheet is a fortress.

Growth Catalysts: A Low-Cost Deposit Base and Strategic Focus

SFDL’s recent results highlight its competitive edge. Deposits rose 1.6% to $1.3 billion in Q1 2025, while borrowings dropped 57.6% as the bank reduced reliance on costlier Fed loans. This has fueled a 22.03% dividend payout ratio, supported by a 3.14% net interest margin—aligning with industry trends but exceeding peers’ efficiency. .

Geographically, SFDL’s focus on North Carolina—a state with 2.3% GDP growth in 2023—positions it to capitalize on steady local demand. Its deposit market share in core counties is 12%, a metric that insulates it from national banking headwinds. With loan demand rising post-pandemic, SFDL’s $1.6 billion in total assets are well-positioned to expand further.

Why Act Now? The Risk/Reward is Unmatched

While regional banks face macro risks like interest rate fluctuations, SFDL’s low beta (0.8) suggests it’s less volatile than peers. Its $95.6 million market cap may deter institutional investors, but this creates a buying opportunity for retail investors. With a 6.53% YTD gain and a 52-week low of $22.00, the stock is near its lowest point in 12 months—despite Q1 earnings growth.

The sector’s average dividend yield is 3.1%, but SFDL’s 2.0% yield is set to rise as its payout ratio grows. The $30.00 stock price is a fraction of its intrinsic value, and with 46 hedge funds already holding its shares, institutional validation is building.

Conclusion: A Rare Gem in a Discounted Sector

Security Federal Corporation is a textbook example of a “value trap turned value play.” With dividend reliability unmatched in its class, a balance sheet stronger than peers, and a valuation that ignores its earnings growth, SFDL is a buy for income-focused investors. The question isn’t whether to invest—it’s whether you can afford to wait.

Act now before the market catches up.

Disclaimer: Past performance does not guarantee future results. Conduct thorough due diligence before investing.