Tags: invesco | dividend | yield | ivz

'Undervalued' Invesco Yields 6 Percent

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Friday, 16 November 2018 10:21 AM Current | Bio | Archive

Investors looking for undervalued, high-yield dividend stocks should take a closer look at the financial sector. Broadly speaking, U.S. financial stocks are in good shape.

The global economy remains on solid footing, and the stock market has performed very well since the Great Recession ended nearly 10 years ago. Moreover, with an aging U.S. population, retirement planning is more in-demand than ever.

Invesco Ltd. (IVZ) is an asset management stock that looks particularly attractive now. Shares have declined by over 40% this year, as rising stock market volatility has taken a toll on the company’s assets under management. However, Invesco continues to make necessary investments in new products and technology to retain clients. And, thanks to the share price decline, Invesco has a low stock valuation and a 6% dividend yield, making the stock particularly attractive for income investors.

Growth In A Challenging Climate

Stock market volatility reared its ugly head to start 2018, which has rattled investors’ nerves. As a result, the asset management industry has seen a drop in AUM over the course of the year. Indeed, Invesco reported its assets under management fell 5.6% in October from the previous month, due to poor stock market returns.

However, Invesco remains in strong financial shape. Operating revenue increased 7.2% over the first three quarters of 2018, as investment management fees and service and distribution fees continue to rise at a steady rate. Overall, Invesco’s earnings-per-share increased 5.7% in the first three quarters. This shows that despite a turbulent stock market in 2018, the company continues to execute.

Invesco is investing heavily in growth, mainly through acquisitions. Invesco is accelerating its growth through acquisitions. For example, Invesco recently acquired the ETF business from Guggenheim Investments for $1.2 billion. This acquisition will enhance Invesco’s product offerings in exchange-traded funds, a growth category within the asset management industry.

Invesco didn’t stop there—along with third-quarter financial results, the company announced it will acquire MassMutual’s asset management affiliate, Oppenheimer Funds. MassMutual will become a significant shareholder in Invesco, with an approximate 15.5% stake. In return, Invesco’s total assets under management will grow to more than $1.2 trillion, making it the 13th largest global investment manager and sixth-largest U.S. retail investment manager.

Invesco is also investing in financial technology. Earlier this year, Invesco acquired Intelliflo, a leading U.K. technology platform for financial advisors. Intelliflo supports approximately 30% of financial advisors in the U.K., and assists financial advisors across a variety of services.

Compelling Value And Income

The appeal of Invesco stock comes from its low valuation and high dividend yield. Despite Invesco’s falling share price, the company continues to perform well from the perspective of fundamentals. Invesco is expected to generate earnings-per-share of $2.80 in 2018. Based on this, the stock currently has a price-to-earnings ratio of 7.2, which is too low for a highly profitable and growing company. Fair value for Invesco could be a price-to-earnings ratio of 12. Expansion of the valuation multiple to this level would result in 10.8% annual returns, thus indicating the potential rewards of buying undervalued stocks.

Plus, Invesco is expected to grow earnings by 6% per year, which should be achievable through higher investment fees and share repurchases. Invesco recently announced a $1.2 billion share repurchase authorization, to be completed over the next two years. The $1.2 billion stock buyback represents approximately 15% of the company’s current market capitalization. As a result, this is a significant buyback that can provide a meaningful boost to the company’s earnings growth.

Lastly, Invesco currently pays an annualized dividend of $1.20 per share. With a recent share price of $20, Invesco stock yields 6%. This is a very high yield, and represents a significant opportunity for income. Of course, sustainability of the dividend is very important. Fortunately, Invesco is likely to have a dividend payout ratio of 43% for 2018, which indicates a sustainable dividend payout.

Final Thoughts

High-yield stocks should be viewed with a healthy dose of skepticism. Sometimes, a plunging share price and elevated dividend yield are signs of danger. Companies in deteriorating financial position will occasionally cut their dividends to preserve cash. But in other times, market irrationality causes a stock to decline, simply out of short-term fear. This appears to be the case when it comes to Invesco, a highly profitable company with an outlook for growth. Its dividend appears to be secure, and represents an attractive yield for income investors.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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BenReynolds
Investors looking for undervalued, high-yield dividend stocks should take a closer look at the financial sector. Broadly speaking, U.S. financial stocks are in good shape.
invesco, dividend, yield, ivz
759
2018-21-16
Friday, 16 November 2018 10:21 AM
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