Inflation continues to run hot, with the consumer price index coming in at 7.9% in February, the highest reading in 40 years. Inflation can make investing tricky because there is no certainty about when elevated levels will ease. There's something you can do about it, though. Including dividend stocks as a part of your diversified portfolio is a prudent move during times like this.
According to Fidelity, dividends account for 40% of the stock market returns since the 1930s. When inflation is high, dividends account for an even greater share of the market's return. Fidelity found that during the inflationary decades of the 1940s and the 1970s, dividends accounted for 65% and 71% of the S&P 500's total returns, respectively.
Moelis & Company (MC -0.57%) is one dividend stock swimming in cash. The investment bank put up a stellar year in 2021, rewarded income investors handsomely, and is still sitting on a big pile of cash. Here's why it might be worth a closer look.
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Last year was a record year for the investment bank
Founded in 2007, Moelis & Company is an investment bank that works in mergers and acquisitions (M&A), debt restructuring, and other capital markets advisory. The firm has been a trusted advisor on several big deals in recent years, including Walt Disney's $85 billion acquisition of Twenty-First Century Fox, Inc., ViacomCBS's $48 million merger, and Hertz's $24 billion debt restructuring.
The firm put up a record year, seeing strong growth across its products and regions. It benefited from tailwinds that boosted the M&A market, seeing global M&A transactions increase 56%. As a result, the company's revenues increased 63% to $1.5 billion, while diluted earnings per share increased 81% to $5.34.
Shareholders were handsomely rewarded
Moelis & Company shared the wealth last year, returning a lot of money to shareholders through dividends and share repurchases last year. The firm pays out a regular dividend of $0.60 per share quarterly, giving it a dividend yield of 5.3% at its current price. Not only that, but it also declared two special dividends for $2 and $2.50 in addition to its quarterly dividend. Moelis & Company's dividend yield jumps to 14.8% as of Tuesday's close price when accounting for these.
The company also spent $104 million buying back 1.9 million shares last year. In total, the company spent $575 million returning cash to shareholders in the form of dividends and share repurchases.
Its cash grew significantly last year
Even after returning so much money to shareholders, Moelis & Company is still sitting on a pile of cash totaling $520 million -- representing an increase in cash of 157% from the year before. Having cash on hand is great for any business, and dividend investors should be pleased to see Moelis & Company's cash pile because it means the company can continue to maintain its dividend payment.
Another positive sign is the firm's dividend payout ratio. The dividend payout ratio is a key metric that lets you know how sustainable a company's dividend payment is. Based on Moelis & Company's regular quarterly dividend of $0.60, the company has a payout ratio of 52%, which is a good sign that the company can continue to make dividend payments going forward.
What investors need to watch for
2021 was the most active year of M&A deals ever, and during its earnings call in February, Moelis & Company says the drivers of robust M&A activity remain in place in 2022. Its peers agree. According to Deloitte, 70% of those surveyed expected the number of deals their companies close to increase over the next 12 months.
Moelis & Company also noted that "the pace of our new restructuring mandates has slowed dramatically." However, it expects opportunities down the road, citing record levels of corporate debt, which could provide an opportunity for restructuring in the coming years.
The stock price is down nearly 40% from its peak in November and currently trades at a cheap valuation with a price-to-earnings ratio of 8.5. While the company may not see the same high level of growth this year compared to last, it is in a solid position sitting on a big pile of cash, which it can use to pay out dividends, repurchase stocks, and reinvest in the growing business.
