Money market, bond and equity investment fund manager Federated Investors, Inc. (NYSE:FII) reported fourth-quarter financial results on Jan. 22. The highlights:
- Earnings per share for Q4 were $0.38, just off last year's $0.39, and in line with estimates.
- Net equity sales were $4.3 billion for the year.
- Total equity assets rose 17% for the year to a record $51.4 billion.
- The company announced a quarterly dividend of $0.25 per share.
While there was nothing outstanding about the quarter, Federated turned in a solid period. Let's take a closer look at the highlights, to gain a little bit of valuable insight into the business.
Equity sales and assets under management
If you've held shares of Federated Investors for any length of time, you probably know the company has been dealing with two major concerns in recent years: extremely low interest rates, and uncertainty around potential SEC rules that could have a major impact on money markets, the company's largest business.
While the SEC ruled on money markets last year, removing much of that doubt -- and with limited impact on Federated Investors -- rates remain extremely low. Over the long term, this could turn out to have been a good thing for the company, which has made efforts to increase the size of its fixed-income and equity sales. Federated is steadily increasing assets under management in those parts of its business:
Why does it matter? In short, Federated makes more money in fees for equity and fixed-income products than it does for managing money market funds.
Dividends and share buyback program
The company announced a dividend of $0.25 per share, putting the yield at 3% based on the current stock price. The dividend has remained largely unchanged since 2008, with the exception of special dividends paid in 2008, 2010, and 2012:
Furthermore, the small share buyback over the past quarter is essentially enough to keep stock incentives for employees from causing dilution. The share count is actually up around 3% since the heart of the recession, though recent buybacks have started bringing it back down, if slowly.
The reality is, the current low-interest-rate environment is likely to continue weighing on the core money market business. However, if the company can continue expanding its other businesses, there's still a way to grow earnings until short-term rates return to historical norms. In the interim, shareholders can count on a steady dividend, even if it's not likely to grow much in the short term.