Attractive Dividend Yield: AllianceBernstein Holding


Investors appreciate the company’s payouts

Stock: AllianceBernstein Holding LP (NYSE:AB)

AllianceBernstein Holding LP currently has a very juicy 8.5% dividend yield with trailing 97% payout ratio, and 11.3 times price-earnings ratio.

The $2.3 billion New York-based asset manager appears to have very generous dividend amount compared to the broader S&P 500 index’s 1.89% and 10-year Treasury rate of 2.254%.

According to filings, AllianceBernstein provides research, diversified investment management, and related services globally to a broad range of clients through its three buy-side distribution channels: Institutions, Retail and Private Wealth Management, and its sell-side business, Bernstein Research Services.

The asset manager’s principal source of income and cash flow is attributable to its investment in AB limited partnership interests. AllianceBernstein has 34.8% interest in this partnership as of June 2017.

**This article consists of the company’s operations and figures. For quicker reading jump ahead to the conclusion part.**

Quarterly performance

Interesting fact about the asset manager is that it records only its equity in net income attributable to AB Unitholders. In the recent six months, its income fell 6.9% lower to $97.6 million and a contrasting 7.1% rise in profits to $11.96 million in profits brought by lower taxes.

AllianceBernstein also grew its assets under management by 5.5% year over year to $516.6 billion.


In the past three years, AllianceBernstein registered revenue growth average of 9.4%.

Balance sheet

AllianceBernstein’s total liabilities fell $72 million while total capital decreased by $99.4 million.

Cash flow

Despite lower profits in the period, AllianceBernstein’s cash flow from operations increased by 23% year over year to $108.8 million brought by higher cash distributions received from its partnership interest.

In recent years, AllianceBernstein has provided most all of its cash flow in dividends.


AllianceBernstein appears to be a well-seasoned asset manager having traced its origins back in 1967. The company has exhibited reliable dividend payouts in the past decade, and the increasing assets under management may further support this trend. Up 11.4% this year compared to the broader S&P500’s 13.43 gains exhibits the near comparison performance of AllianceBernstein plus the hefty dividends.

Meanwhile, one can have a hard time deriving share price using dividend growth and payouts given the company’s varying payouts.

Despite its current juicy dividend yields, AllianceBernstein would further be a very attractive buy given any 5-10% pullback vs. its current share price of $24.5.


Seth P. Bernstein, President and CEO of AB (second quarter)

“It’s clear that I’ve joined AB at an exciting point in the firm’s long-term strategic and competitive transition.”

“AB’s momentum accelerated in the second quarter, with 11% year-on-year gross sales growth, active net inflows of $6.6 billion that were positive across all three client channels, 270 points of adjusted operating margin expansion and 26% growth in adjusted earnings per unit.”

“AB’s strategy to maintain a laser focus on investment performance, broaden our global presence, consistently deliver relevant services to our clients and remain vigilant in improving our financial position is the right one, and after years of relentless execution, our steady progress is coming through in the results. Investment performance remains stellar across the fixed income franchise and equity track records keep trending upward. In Retail, gross sales remained at record levels during the quarter, driven by strength in our preeminent Asia ex Japan fixed income franchise, where first half gross sales increased 65% year-on-year and net flows totaled more than $4 billion. In Institutional, we were pleased to see a recovery in activity levels from the first quarter. Gross sales rose 60% sequentially and inflows of $1.2 billion returned to positive territory. We’re particularly encouraged by the positive trend in our pipeline fee rate. We’re winning more mandates in higher fee areas like commercial real estate debt and concentrated active equities – demonstrating the success we’ve had in diversifying our product set. As a long-time personal client, I knew the Bernstein Private Wealth business well coming in, but I didn’t fully appreciate how effective we’ve been in recent years in appealing to larger and more sophisticated clients with our offering. The suite of targeted services, which has $5.5 billion in commitments today, has been instrumental in this effort. On the sell side, I was well aware coming in of Bernstein’s reputation for differentiated institutional research. Now I see how well this business is navigating shrinking trading volumes and fee compression in the US and the MiFID II rollout in Europe, while expanding our research and trading presence in faster-growing international markets. Finally, AB has done impressive work to improve our financials, in particular continuing a five-year trend of margin expansion so far in 2017. The second quarter adjusted margin of 25% was up 270 bps year-on-year, and adjusted earnings per unit of $0.49 were up 26%.”

“Spending time with my new colleagues here has confirmed what I knew coming in: AB is full of brilliant and talented people who are striving to deliver for clients – and succeeding in creating better outcomes for them. It’s an honor to be at the helm of such a great firm, and I’m looking forward to doing what I can to build upon AB’s success from here.”

Disclosure: I do not have shares in any of the companies mentioned.


Back to Growth: Affiliated Managers Group


Stock: Affiliated Managers Group (ticker AMG)

Asset manager rewards shareholders with dividend payouts

Share price of Affiliated Managers Group has hovered near one-year highs in recent times as the $10 billion Florida-based asset manager delivered 1.4% revenue rise in its recent first-half operations and a more impressive 17.2% profit increase to $248.8 million resulting in 22.3% margin compared to 19% a year earlier.

The asset management group recorded $13.6 million investment and other income, and $1.3 million lower in operating expenses resulting in more profitability in the period.

Assets under management, a critical metric for asset managers, grew 19% year over year to $772 billion.

Nonetheless, Affiliated Managers Group outperformed the S&P 500 index nearly twice so far this year having generated 24.21% total gains compared to the index’s 13.33% (Morningstar).

Meanwhile, the company trades at a slight discount compared to its peers with PE 20 times vs. industry average 21.3 times, and a good 40% discount compared to its three-year average.

Affiliated Managers Group
Affiliated Managers Group was founded in 1993. As per company filings, the company is a global asset management company with equity investments in leading boutique investment management firms, which the company refers to as its “Affiliates.”

Affiliated’s innovative partnership approach allows each Affiliate’s management team to own significant equity in their firm and maintain operational autonomy.

Further, the company’s strategy is to generate shareholder value through the internal growth of existing Affiliates, as well as through investments in new Affiliates, and additional investments in existing Affiliates.

In addition, Affiliated provides centralized assistance to its Affiliates in strategic matters, marketing, distribution, product development and operations.

The company holds meaningful equity interests in each of its Affiliates.

In certain cases, Affiliated owns a majority of the equity interests while in other cases it owns a minority of the equity interests.

In all cases, Affiliate management retains a significant equity interest in its own firm.

In 2016, Affiliated generated 67% of its revenue in the United States, 26% in the United Kingdom, and the other in remaining other countries. Affiliated derives most of its revenue from asset-based and performance fees from investment management service.

According to filings, Affilated has determined to report just one segment from three in its previous fiscal year.

Sales and profits
In the past three years, Affiliated registered 0.09% revenue growth average, profit growth average of 9.5%, and profit margin average of 20.1% (Morningstar).

Cash, debt and book value (equity)
As of June, Affiliated Managers Group had $365 million in cash and cash equivalents and $2 billion in long-term debt with debt-equity ratio 0.73 times compared to 0.56 times a year earlier. Long-term debt fell by $105 million year over year while equity rose $681 million to $3.6 billion.

In addition, 48% of the company’s $8.6 billion assets were labeled as goodwill and intangibles.

Cash flow
In the first half, Affiliated’s cash flow from operations increased by 30% year over year to $444 million brought by higher profits, and cash flow from the company’s distributions of earnings received from equity method investments among others.

Capital expenditures were $7.2 million leaving the company with $437 million in free cash flow compared to $332 million a year earlier.

In addition, Affiliated allocated $354 million in debt reduction (net issuances/other financing activities), and dividends and share repurchases represented 39% of its free cash flow.

The cash flow summary
In the past three years, Affiliated allocated $77 million in capital expenditures, reduced its debt by $614 million net issuance/others, raised $565 million in share issuances, generated $3.55 billion in free cash flow, and paid out $638 million (mostly share repurchases) at an average payout ratio of 18%.

Affiliated did seem to exhibit a good turnaround in both revenue and profits. The company’s business generator and critical metric–assets under management–has been steadily growing in recent years.

Meanwhile, it is important to remember that the company had a poor performance in its prior year brought by its consolidation of Affiliate average assets under management at existing Affiliates. Investors should try to foresee if this trend would continue moving forward as this activity may potentially result in lower profits.

As of its recent filing period, Affiliated also exhibited a leveraged balance sheet and nearly half of its assets were labeled as goodwill and intangibles while having kept a relatively conservative payout ratio.

The company’s recent dividend payouts are welcoming for its shareholders as it has maintained this payout ratio in recent years.

Analysts have an average overweight recommendation with a target price of $201.33 vs. $179.87 at the time of writing. Multiplying previous PS multiples to the average revenue estimates with a 25% margin indicated a per share figure of $127.21.

In summary, Affiliated is a hold with $190 price target.

Sean M. Healey, Chairman and Chief Executive Officer of AMG.
“AMG generated strong results in the second quarter across our key operating metrics, including Economic earnings per share of $3.33, positive net client cash flows, and a year-over-year increase of 19% in our assets under management, to a record $772 billion.”

“Through the ongoing execution of our growth strategy, including consistent alpha generation by our Affiliates, positive organic growth from net flows, and the continued success of our strategy to partner with the leading boutique firms worldwide, we have meaningfully increased the earnings power of our business.”

“During the second quarter, AMG generated positive net client cash flows of $1.8 billion, as ongoing strong demand for a wide range of alternative strategies from both institutional and retail clients was partially offset by continued net outflows in U.S. equities.”

“In a dynamic market environment, our Affiliates are well-positioned to outperform peers and benchmarks, building further on their long-term track records of leading investment performance. With our Affiliates’ outstanding offerings across attractive alpha-oriented product areas, we have excellent prospects for continued strong organic growth going forward.”

“Looking ahead, given the significant and growing scale of our global business, we are confident in our ability to continue to generate meaningful earnings growth through accretive investments in outstanding new Affiliates, while also consistently returning capital to shareholders through our quarterly cash dividend and share repurchases. With this disciplined commitment to capital allocation, along with the organic growth of our Affiliates, we are uniquely positioned to create long-term shareholder value.”

Disclosure: I do not have shares in any of the companies mentioned.

Invesco: A Cautious Buy


Stock: Invesco (ticker IVZ) 

Increasing asset under management should help deliver growth

Invesco, the $13 billion Georgia-based asset management company, delivered 4.7% revenue increase to $2.45 billion in its recent six months of operations and a more impressive 16.8% profit increase to $451.6 million.

Operating expenses rose 6%, while the company recorded $28.6 million higher other income such as from its unconsolidated affiliated equity earnings and others, resulting in higher overall profitability.

So far this year, Invesco has underperformed the broader S&P 500 index has generated 10.9% total returns vs. the index’s 13.2% (Morningstar).

The asset manager also trades at discount compared to industry averages such as 14.6 in PE vs. industry’s 21.2.


Invesco was founded 82 years ago and according to filings, Invesco Ltd. is an independent investment management firm dedicated to delivering an investment experience that helps people get more out of life.

Invesco has specialized investment teams managing investments across a broad range of asset classes, investment styles, and geographies.

The company provides a comprehensive range of investment capabilities and outcomes, delivered through a diverse set of investment vehicles, to help clients achieve their investment objectives.

Invesco has a significant presence in the retail and institutional markets within the investment management industry in North America, EMEA (Europe, Middle East, and Africa) and Asia-Pacific, serving clients in more than 100 countries.

In 2016, Invesco generated 53% of its operating revenue in the United States, 22% in the United Kingdom, 13% in Continental Europe/Ireland, and the remaining in other countries.

Assets under management (AUM)

Invesco’s ending AUM as of June 2017 rose 10.1% year over year to $858.3 billion.

Sales and profits

In the past three years, Invesco logged 0.64% revenue growth average, (-)3.15% profit decline average, and 18.6% (Morningstar).

Cash, debt and book value (equity)

As of June, Invesco had $1.97 billion in cash and cash equivalents and $6 billion in long-term debt with debt-equity ratio 0.75 times compared to 0.73 a year earlier. Overall long-term debt rose $402 million while equity increased by $316 million to $7.97 billion.

Meanwhile, 27% of Invesco’s $28.2 billion assets were identified as goodwill and intangibles.

Cash flow

Invesco’s cash flow from operations rose 350% year over year in its six months of operations to $781.6 million brought mostly by higher cash flow from the company’s cash held by consolidated investment products, sale of trading investments (net), and payables.

Capital expenditures were $60 million leaving Invesco with $722 million in free cash flow compared to $109 million a year earlier.

The company allocated $297 million in debt reduction net issuance and other financing activities while having dividends and share repurchases represent 40% of the free cash flow in the period.

The cash flow summary

In the past three years, Invesco allocated $405 million in capital expenditures, raised $4.05 billion in debt (net repayments and other financing activities), generated $1.98 billion in free cash flow, and provided $2.7 billion in dividends and share repurchases.


Invesco’s recent half operations indicated steady growth in operations so far, and along with its other income generating assets, further improve the company’s level of profitability for the period.

Nonetheless, certain metrics indicated a slow decline in recent years. Invesco’s ROA and ROE dropped to 3.36% and 11.1% in 2016 compared to 4.97% and 11.82% in 2014.

Invesco also carried a leveraged balance sheet accompanied by more than a quarter of goodwill and intangibles. The company also has maintained significantly generous payouts to shareholders in recent years.

Analysts have an average buy recommendation with a target price of $38.12 a share vs. $32.78 at the time of writing. Average revenue estimates multiplied with past multiples with a 20% margin indicated a per share figure of $21.

In summary, Invesco is a cautious buy with $36.9 target price.


Martin L. Flanagan, president and CEO of Invesco (IIC)

“Our focus on delivering the outcomes clients seek by providing strong, long-term investment performance helped us achieve an adjusted operating margin of 39.3% during the second quarter.”

Disclosure: I do not have shares in any of the companies mentioned.