Friday, September 30, 2011

Eaton Vance (EV) Dividend Stock Analysis 2011

Eaton Vance Corp. (EV), through its subsidiaries, engages in the creation, marketing, and management of investment funds in the United States. It also provides investment management and counseling services to institutions and individuals. Eaton Vance is a dividend champion which has paid uninterrupted dividends on its common stock since 1976 and increased payments to common shareholders every year for 30 years.

The most recent dividend increase was in October 2010, when the Board of Directors approved a 12.50% increase in the quarterly dividend to 18 cents/share. Eaton Vance’s largest competitors include Franklin Resources (BEN), T. Rowe Price Group (TROW) and Blackrock (BLK). In a previous article I mentioned that I am bullish on asset managers for the long run, and Eaton Vance fits by default.


Over the past decade this dividend growth stock has delivered an annualized total return of 5.30% to its shareholders.

The company has managed to deliver a 6.60% annual increase in EPS since 2001. Analysts expect Eaton Vance to earn $1.82 per share in 2011 and $1.99 per share in 2012. In comparison Eaton Wance earned $1.42 /share in 2010. The company has managed to consistently repurchase 2.25% of its common stock outstanding over the past decade through share buybacks.

Overall I am bullish on asset managers in the long run, and Eaton Vance fits by default. As we have millions of baby boomers retiring and needing financial advice, I expect them to use financial advice from certified planners, which would pre-sell open and closed-end funds and other financial products. Once a product has been sold to investors, it creates a recurring income stream to the provider of funds. The revenues that investment managers generate are realizable in cash almost instantaneously, which is a big plus. New product offerings could also contribute to growth, although at $199 billion in asset under management, it won’t be the main source of revenues for Eaton Vance. Acquisitions to obtain companies that target high-net worth individuals could be a big driver for future growth, as would be expansion internationally. Another positive is that as US stock prices keep increasing, this would eventually attract more investors to add in more money, which would create even higher profits for companies like Eaton Vance. Overtime I expect Eaton Vance to get an even larger pile of assets under management due to all of the above mentioned reasons, which would lead to earnings and dividend growth.

One of the largest risks for Eaton Vance includes competition, which could result in net outflows for assets under management as well as decrease in fees charged to clients. Another risk includes prolonged declines in equity markets, which could turn investors off stock market investing. Most notably that hasn’t been the case for Eaton Vance during the “lost decade”, as assets under management grew from $49.20 billion at the end of 2000 to $199 billion as of July 31, 2011.

The company generates a very high return on equity, which has followed the ups and downs of the stock market over the past decade. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 19.80% per year over the past decade, which is higher than the growth in EPS.

A 20% growth in distributions translates into the dividend payment doubling almost every three and a half years. If we look at historical data, going as far back as 1990, we see that Eaton Vance has actually managed to double its dividend every four years on average.

The dividend payout ratio has almost tripled from 17% in 2001 to 47% in 2010. The reason behind this increase was the fact that dividend growth exceeded earnings growth over the past decade. Based on forward earnings for 2011 however, the payout ratio is less than 40%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently Eaton Vance is trading at 13.10 times earnings, yields 3.20% and has a sustainable dividend payout. The company rarely yields more than 2.50%, is attractively valued per my entry criteria, which is why I view the current weakness in the stock price as a good opportunity to add to my position.

Full Disclosure: Long EV

Relevant Articles:

2 comments:

  1. I really like TROW I really didn't know much about EV until reading this article. I would have to agree that with the baby boomers and everyone being scared out of there wits CFP will be getting a lot of attention.

    ReplyDelete
  2. If they engage in marketing investment funds, it's no wonder they have done so well. A blue chip's blue chip!

    I really like your analysis DGI!

    Well done! You're giving people some awesome info on your site!!

    ReplyDelete

Questions or comments? You can reach out to me at my website address name at gmail dot com.

Popular Posts