The Top Stock You Should Consider for Your IRA

By Matthew Frankel Markets Fool.com

To be clear, there are dozens, if not hundreds of stocks that could make great IRA investments, depending on your risk tolerance and portfolio diversification. One stock in particular that I have my eye on for my own IRA right now is New York Community Bancorp (NYSE: NYCB) -- more specifically, I already own it but am considering adding to my position now that the stock has declined. Here's why.

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New York Community Bancorp: The quick version

New York Community Bancorp serves customers in New York, New Jersey, Florida, Ohio, and Arizona, and has been in operation since 1859. The bank has a rather unique business model, under which it primarily makes commercial loans on rent-controlled or rent-stabilized apartment buildings, most of which are in New York City.

This has worked out well for NYCB and its shareholders over the years. Since rent-controlled buildings have inherently low default rates (tenants are getting a good deal and therefore keep paying their rent on time), NYCB's charge-off and delinquency rates stay extremely low, even in tough economic times such as the Savings & Loan Crisis and the Great Recession.

An eventful 2016

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In late 2015, New York Community Bancorp announced its intention to merge with Astoria Financial (NYSE: AF) and shareholders weren't too happy about the news. For one thing, the merger would push the bank over the $50 billion threshold that makes it a systemically important bank, which it had long tried to avoid. (Here's a great discussion of the merger and why investors didn't like it, by my colleague John Maxfield) Surpassing this threshold would mean additional regulatory expense, as well as the likelihood of dividend cuts -- New York Community paid a rather high dividend for the purpose of staying under the threshold, now its dividend policy would be subject to regulatory approval.

In addition, Astoria is not nearly as efficient as New York Community Bancorp, nor is its asset quality as strong -- two of the key competitive advantages which New York Community Bank shareholders weren't too eager to part with.

As 2016 drew to a close, New York Community abruptly announced that the merger agreement was being terminated. Now, everything I've said until this point might lead you to believe that shareholders would rejoice and the stock would shoot upward. However, this wasn't the case. After the termination was announced, New York Community Bancorp's stock plunged, giving up most of its "Trump rally" gains.

NYCB data by YCharts

The bank recently reported its year-end results, and the numbers looked strong, despite the fact that the stock fell even further. The company's efficiency ratio of 44.5% was among the best in the industry, as was the non-performing asset ratio of 0.14%.

What to expect going forward

In its year-end earnings press release, New York Community Bancorp's President and CEO Joseph Ficalora said that the company still plans to control its growth to remain under the $50 billion threshold. This could mean that the bank's dividend could increase going forward, if it becomes necessary to do so.

Ficalora also said that the bank's best path toward crossing the threshold is through a large deal, like the Astoria merger would have been. So, investors should expect the bank to possibly pursue another merger in the not-too-distant future. In the meantime, New York Community Bancorp will continue to do what it does best -- lending on rent-controlled multi-family properties and running one of the most efficient banking operations in the U.S.

It's also worth mentioning that with Donald Trump in the White House and a Republican-controlled Congress, it's entirely possible that banking regulations could be rolled back significantly, including those that go along with the $50 billion regulatory threshold. If that were to happen, the growth/no-growth dilemma could become a moot point.

Not the best IRA stock for everyone

As I mentioned in the introduction, there are plenty of good IRA stocks, and obviously, New York Community Bancorp is not the best possible IRA stock for everyone. So, only consider it for your IRA if it meets your risk tolerance and investment goals, and fits in well with your existing investments. For example, if you already have a lot of exposure to the banking sector, you may be better off looking at stocks in another sector to add some diversity. However, if you have room for a new bank stock in your portfolio, New York Community Bancorp could be a long-term investor's dream -- a great bank at a wonderful price.

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Matthew Frankel owns shares of New York Community Bancorp. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.