This brilliant FTSE 250 stock has an 8.7% dividend yield! But I’m not buying yet

This FTSE 250 bank’s seen its share price fall 15% over the past month. While the business is great, the stock could pull back further.

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TBC Bank (LSE:TBCG) is a Georgian bank headquartered in Tbilisi, and listed on the FTSE 250.

Like its peer, Bank of Georgia, it’s an excellent company and a leading universal bank. Together with its subsidiaries, the group boasts a strong market share in Georgia — 39.3% of customer loans and 40.1% of customer deposits as of 31 December 2023.

TBC Bank also operates in Uzbekistan.

The bank’s share price is up 131.6% over the past three years but it recently gave back some of its gains. While this may look like a buying opportunity, I’m not buying yet.

An excellent business

TBC Bank has seen its profitability surge since the pandemic. In the first quarter of 2024, the firm announced that pre-tax profits had risen 15.8%, driven by a 21% increase in net interest income.

Management pointed to higher interest rates and a “dynamic” loan book as it also highlighted strong economic growth in its two major operating countries — Georgia and Uzbekistan.

At the time of the results, on 10 May, the bank said it expected the Georgian economy to grow by 6.4% in 2024, and the Uzbek economy by 5.6%. As we know, strong economic growth’s important for cyclical stocks like banks.

It’s also trading at just 4.1 times earnings from the previous year. It’s among the cheapest banks I’ve come across on the UK exchange.

It’s political

Stocks are by no means immune to political changes and upheaval. In fact, we’ve seen a lot of stock action in relation to political changes around the world this week.

Indian stocks slumped after the growth-focused but openly-prejudiced BJP lost its majority, while South African stocks have recently pushed forward on the prospect of a market-friendly coalition involving the DA.

In Georgia, parliamentary elections are still several months away — October — but a recent ‘foreign agents’ bill passed by the ruling Georgian Dream party has caused outrage.

The bill, passed into law on Monday, has been likened to laws passed in Russia and has heightened concerns about Georgia’s trajectory.

While most Georgians want the country to join the EU, the Georgian Dream party hasn’t distanced itself from Russia as much as many would like.

With thousands taking the streets in protest, the government claim the bill’s necessary to curb the influence of harmful foreign influence.

Opponents claim the bill will be used to stigmatise and restrict critical voices in the lead-up to the election.

What’s more, the bill’s served to further polarise the country with the October election seemingly representing two distinct pathways for Georgia.

My concern is that we could see more protests and more dissenting voices in the coming months. If it escalates, this will be bad for the economy, and bad for banks.

Moreover, if the Georgian Dream loses its majority, political uncertainty could put more downward pressure on Georgian stocks.

The bottom line

TBC Bank shares are down around 15% over the past month, and this has pushed the dividend yield up to 8.7%. And with a 2.78 times dividend coverage ratio, the dividend payments look affordable.

However, I fear the share price could fall further. I’ll be keeping an eye on it, because, fundamentally, it’s an excellent business.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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