Last week the company raised its quarterly dividend by 12.90% to 35 cents/share. This marked the 38th consecutive dividend increase for this dividend champion.
Eaton Vance has delivered a 9.10% annualized total return over the past decade.
Eaton Vance has managed to grow dividends at an annualized rate of 8.50% over the past decade.
The company has managed to grow earnings at a rate of 8.60%/year over the past decade. this was helped by the fact that it managed to reduce the number of shares outstanding by 14% over the past decade. The rate of dividend growth has tracked the growth in earnings per share over our study period. The company earned $1.06/share in 2007, and managed to grow it to $2.42/share by 2017. Analysts expect that Eaton Vance will earn $3.21/share in 2018.
The company has been able to grow revenues by growing assets under management. Assets have increased by attracting new client inflows, acquiring assets through acquisitions and through price appreciation. Market appreciation is a strong long-term tailwind, which can grow assets under management and related fees over time. If customers add money to the base on a net basis, assets grow even further.
Good relative performance is rewarded with client inflows. In general, clients have tended not to move assets out once they have been invested. Inertia can be a powerful force. But you cannot blame them for staying – there is an opportunity cost associated with switching investment products and strategies. For other strategies focusing on tax managed assets, retirement plan assets or closed-end-funds, you have a more sticky asset base that is less likely to leave.
The company is adapting to the changing needs of the customers by launching new products, which also attracts more money under management. The price to pay of course is that during bear markets, assets under management will likely decline, dragging down short-term results with it.
There is an element of scale with investment managers. It doesn’t take that much effort to run more money, but on the other side the cost gets spread over a larger base, resulting in higher profit margins.
There is a large amount of competition, and a pressure on fees. Passive investing funds are gaining in popularity during the strong bull market we have been experiencing. In total, passive investment funds have been generating inflows, while actively managed funds have generated outflows.
The dividend payout ratio is at 48% today, versus 48% in 2007. While there were some fluctuations along the way, it remained in a 37% - 59% range over the past decade.
Right now, I find Eaton Vance to be attractively valued at 14.40 times forward earnings. The stock yields a safe 3%, which is well covered by its earnings. In addition, earnings grow over time, which bodes well for future expected dividend growth.
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