Friday, September 23, 2011

Eaton Vance Stock Analysis

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.


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 12.70 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

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