Wednesday, April 6, 2011

Dividend Macro trends: The Baby Boomer Retirement Investment

There are 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. While I am a big fan of dividend investing in retirement, I understand that most investors would probably end up relying on the four percent rule. 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. 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 asset managers. Overtime I expect money managers 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. Overall I am bullish on asset managers in the long run, and companies like Eaton Vance (EV) fit by default. One of the largest risks for money managers 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 many companies during "the lost decade”, as assets under management grew steadily over the period.

Companies which have been able to raise dividends for several consecutive years include:

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. This dividend champion has raised distributions for 30 years in a row and spots a 10 year annual dividend growth rate of 20.60% per year. Yield: 2.40% (analysis)

T. Rowe Price Group, Inc. (TROW) is a publicly owned asset management holding company. The firm primarily provides its services to individual and institutional investors, retirement plans, and financial intermediaries. This dividend achiever has raised distributions for 24 years in a row and spots a 10 year annual dividend growth rate of 15.30% per year. Yield: 1.90% (analysis)

SEI Investments Company (SEIC) provides investment processing, fund processing, and investment management business outsourcing solutions to corporations, financial institutions, financial advisors, and high-net-worth families. This dividend achiever has raised distributions for 18 years in a row and spots a 10 year annual dividend growth rate of 17.90% per year. Yield: 0.90%

Franklin Resources Inc. (BEN) is a publicly owned investment manager. The firm provides its services to individuals, institutions, pension plans, trusts, and partnerships. It primarily manages families of equity, fixed income, and balanced mutual funds for its clients. This dividend champion has raised distributions for 30 years in a row and spots a 10 year annual dividend growth rate of 13.90% per year. Yield: 0.80%

Ameriprise Financial, Inc. (AMP), through its subsidiaries, provides financial planning, products, and services primarily in the United States. The company operates in four principal segments: Advice & Wealth Management, Asset Management, Annuities, and Protection. This dividend stock has only raised distributions for 6 years in a row and and yields 1.20%.

The fortunes of financial services firms are closely tied to the performance of the stock markets. As result they would typically be selling at the most attractive valuations during bear markets. Nevertheless, some of the companies traded above could be attractive purchases on dips. Untill then, do your research and wait for the right price.

Full Disclosure: None

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