Merchants Bancorp's Preferred Stock: A Safe Harbor for High-Yield Investors

The banking sector has been a rollercoaster lately, with loan pipelines stalled and interest rate volatility shaking profits. But amidst the chaos, one name stands out: Merchants Bancorp (NASDAQ: MBIN). Its Series E Preferred Stock (MBINL)—currently trading at a 6.68% discount to liquidation value—is a rare gem for income investors. Let me break down why this high-yield play deserves your attention now.

Dividend Discipline: A 7.625% Yield Backed by Financial Fortitude

The Series E Preferred Stock offers an annual dividend of $1.90625 per depositary share—that’s an 8.17% yield at today’s $23.33 price—but what makes this payout credible? Look no further than Merchants’ strategic capital management. The company recently redeemed its Series B Preferred Stock, which carried a sky-high 9.42% dividend rate, replacing it with the cheaper Series E. This move slashed interest costs, freeing up capital to sustain payouts while boosting shareholder value.

The Series E’s non-cumulative status might give some pause, but Merchants has a spotless track record of dividend consistency. Even in Q1 2025—when net income fell 33% due to loan origination delays—the company maintained its Series E dividend. Why? Because preferred shareholders sit above common stock in the capital structure, and Merchants prioritizes their stability. This isn’t a bank scrambling to cut dividends; it’s a disciplined institution making smart capital choices.

Valuation: A 6.68% Discount to Safety

At $23.33, MBINL trades well below its $25 liquidation preference, offering a 6.68% margin of safety. If the stock were to rebound to par—a realistic scenario if Merchants’ earnings stabilize—investors would gain $1.67 per share, or roughly 7.2% in addition to the 8.17% yield. That’s a total return potential of ~15% even without factoring in rising interest rates or improved banking sentiment.

Compare this to the broader sector: Many regional banks are trading at premiums to book value while grappling with rising provisions for loan losses. Merchants, however, boasts a record $34.90 tangible book value per share and a $4.7 billion liquidity cushion. Its core deposits surged 30% year-over-year, reducing reliance on costly brokered funding—a sign of financial strength others lack.

Why MBINL Beats the Banking Sector’s Headwinds

While banks like First Republic and PacWest collapsed under loan defaults and deposit runs, Merchants has remained resilient. Its $18.8 billion asset base is 5% larger than a year ago, and it’s shifting to low-cost core deposits (now 86% of total deposits). CEO Michael Petrie isn’t just surviving—he’s positioning for a comeback once market uncertainty fades. The Q1 dip was temporary; the loan pipeline remains robust, and the company’s focus on multi-family healthcare financing offers recession-resistant income streams.

Meanwhile, MBINL’s 2030 call date gives investors over seven years to collect dividends before Merchants could even consider redeeming the shares. At today’s price, you’re paying less than the liquidation value and earning 8%—a rare combination in a world of 3% savings accounts.

Action Plan: Buy Now, Earn Later

This isn’t a gamble—it’s a calculated bet on Merchants’ ability to navigate the banking storm. With its capital structure simplified by the Series B redemption, its deposit base fortified, and its preferred dividends intact, MBINL is a bulletproof income play. Here’s how to play it:

1. Buy MBINL now, locking in the 8.17% yield.
2. Hold for the long term—the discount to liquidation value and the 2030 call date mean this stock can’t crash unless the bank itself fails (which the fundamentals don’t support).
3. Reinvest dividends to compound returns as the stock price inches toward $25.

The key risk? If Merchants’ net interest margin continues to compress, but with core deposits growing and loan pipelines intact, I’d bet on a rebound. This is a stock for investors who want high yield without the fear of losing principal.

Final Word: A Dividend Machine in Disguise

Merchants Bancorp’s Series E Preferred Stock isn’t just a high-yield play—it’s a testament to management’s discipline. With a fortress balance sheet, a dividend backed by strategic capital moves, and a price that’s screaming “buy,” this is a rare opportunity to earn 8% while waiting for the banking sector’s next rally. Don’t let this one slip away—act now.

Disclosure: I do not own MBINL. This is for informational purposes only.