One of the reasons why I think this business is such a good investment is it’s one of the few companies in the FTSE 100 still majority-owned by its founding family. Schroder family’s investment vehicles own just under 50% of the company’s voting shares

The family’s interests are represented on the company’s board by Leonie Schroder, appointed after the death of her father in February, becoming the fifth generation to sit on the board since Schroders was founded in 1804.

Growing business

Over the past 215 years, Schroders has grown from a small family business into one of the world’s largest asset managers with £424bn of investors’ funds under management and administration (FuMA) at the end of 2018.

In my opinion, this wouldn’t have been possible without the Schroder families input. The majority ownership of the business means management can concentrate on growing the company for the long term, rather than chasing short-term profit targets.

Thanks to its wider perspective, growth has accelerated over the past six years as investments in areas such as customer service have paid off. Net profit is up 43% since 2013 and management has increased the per share dividend payout by around 100%. City analysts are expecting further growth in the years ahead with net profit expected to grow approximately 20% between now and 2020.

The one negative I see here is the stock’s valuation. Shares in Schroders are currently dealing at a forward P/E of 15. However, considering the asset manager’s historical growth, substantial brand value and family ownership, I think this is a price worth paying for what I believe is one of the best-managed companies in the FTSE 100 today. At current levels, the stock supports a yield of 3.8% as well.

Business transition

Another City stalwart with a storied history that could be an exciting addition to your portfolio today is Charles Stanley (LSE: CAY).

The business is currently in the middle of a substantial overhaul, moving away from low-margin execution-only share dealing and growing out the firm’s discretionary management services, which have higher profit margins.

So far, the results of this strategy have been mixed. All evidence points to the fact that discretionary FuMA are growing, but outflows from other lines of business are offsetting some of the improvement and restructuring costs are weighing on profits.

Indeed, at the end of March, the company reported discretionary FuMA of £13.1bn, up 6.5% year-on-year, although overall FuMA increased just 1.3% to £24.1bn. This trend has continued, according to the firm’s latest trading update for the three months to the end of June 2019. At the end of the second quarter, FuMA totalled £24.4bn, up 1.2%. Investment performance of £0.9bn offset net outflows of £0.6bn.

Charles Stanley expects to incur £9.5m of restructuring costs over the next two to three years, which will weigh on profit growth this year. Analysts are expecting profits to remain flat at 16.2p per share, putting the stock on a forward P/E of 17 at the time of writing.

This could be a bit pricy for some investors. But if the firm’s restructuring does start to yield results, it could be a price worth paying.

The post £1K to invest? I’d buy this FTSE 100 income and growth champion today appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Increasing competition coupled with the lack of volatility in markets has hit the group’s bottom line, so management has taken action to restructure the business.

These efforts have paid off. Today the group reported a 30% increase in pre-tax profit for the year to the end of March from £11.5m to £8.8m as revenue climbed 6.6% to £151m. Profits expanded despite administrative expense growth of 4.4% from £136m to £142m. Funds under management and administration decreased year-on-year to £23.8bn from £24bn, although this figure tends to bounce around due to market movements. Discretionary funds increased by 7.9% to £12.3bn from £11.4bn.

Off the back of this robust trading performance, Charles Stanley lifted its total dividend by 33% to 8p.

Undervalued growth 

I believe, the investment group’s performance for the year to the end of March 2018 is a testament to how hard the company has worked over the past few years to turn the ship around and is a significant improvement on the net loss of £6.2m reported for 2015. What’s more, I believe this is just the start of the company’s recovery. 

According to CEO Paul Abberley, the focus of Charles Stanley in fiscal 2019 “will be on driving top-line revenue growth whilst improving operational efficiency,” as the firm seeks to leverage the changes brought in over the past five years, mainly a focus on higher-margin business. For their part, City analysts are forecasting earnings growth of 38% for the year on net profit growth of 45%. The group’s dividend distribution is expected to expand by a similar amount.

And the best part is, you don’t need to pay over the odds for this growth. Shares in Charles Stanley currently trade at a forward P/E of 14.4 and a PEG ratio of 0.5, implying that the stock is undervalued when factoring-in the growth the company is expected to produce.

Hedge your bets 

If you are not interested in Charles Stanley, there’s another City institution that also looks to be an exciting opportunity at current levels.

Man Group (LSE: EMG) is one of the world’s few publicly traded hedge funds, giving the average investor the opportunity to diversify a portfolio in a way only usually available to high-net-worth individuals.

Man’s earnings are tied to the performance of its funds, which makes for a volatile bottom line. Still, earnings volatility aside, the company has built a reputation for itself recently as an income champion. The stock currently supports a dividend yield of 5%, and analysts have pencilled in payout growth of 12% next year, giving a potential yield of 5.3%. 

Management is also returning cash via stock buybacks. Last year $350m was returned to investors via buybacks and dividends. Over the past five years, the company has returned a total of $1.5bn to investors through buybacks and dividends.

So, if you are looking for an income champion to sit alongside Charles Stanley in your portfolio, Man could be an ideal candidate. Also, while the former has warned that stock market volatility in 2019 could hamper profit growth, Man’s trading business thrives on volatility, providing a perfect hedge against uncertainty.

The post This battered small-cap could see a stunning turnaround this year appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Some smaller and more specialist financial stocks have been stronger performers, so today I’m looking at two potential dividend buys from this sector.

A mixed picture

Shares of investment manager Charles Stanley Group (LSE: CAY) fell by nearly 5% in early trade on Monday, after the 226-year old City firm reported a 4.4% fall the value of clients’ funds.

The company said that Funds under Management and Administration (FuMA) fell from £24.9bn to £23.8bn during the three months to 31 March. This compares to a fall of 5.1% for the company’s chosen benchmark, the FTSE UK Private Investor Balanced Index.

It looks like the firm’s funds probably beat the market by a small margin, although the overall result was also boosted by £200m of net inflows during the period.

It’s good that the amount of money invested by clients is continuing to rise. But I think the real story here is the changing mix of business carried out by the firm.

Higher margin services

Stockbrokers such as Charles Stanley offer three types of service for private investors:

• Execution only – buys and sells stocks on your instructions only.
• Advisory – provide advice on which stocks and funds to buy and sell
• Discretionary – invest your money for you, e.g. managed funds

According to Charles Stanley, discretionary services carry “higher margins”. The firm is expanding its focus on this area. It says that clients are increasingly switching out of advisory services and into execution only or discretionary products.

City analysts expect this change to help boost profits over the coming year. They’re pencilling in a 49% increase in earnings for the year to 31 March 2019. That leaves the stock on a forecast P/E of 13 with a prospective yield of 3.6%.

I’d be happy to buy at this level, although it’s worth remembering that a big market correction could cause investors to withdraw cash and cut the firm’s profits.

This 5% yielder could do better

One downside of investment managers is that their profits are generally linked to stock market performance. That’s not the case for lenders, such as sub-prime specialist International Personal Finance (LSE: IPF).

This company’s focus is on doorstep lending and online loans in countries including Poland, Lithuania, Finland, Spain and Mexico. Shares of this group have risen by almost 20% this year following a strong set of full-year results.

Pre-tax profit rose by £9.6m to £105.6m last year. The accounts show that about 85% of this came from the group’s European operations, with Mexico the other main contributor.

IPF’s profits are supported by a large and mature home credit business, while its online operations are still lossmaking. But performance is improving and I expect this to become a valuable source of profits over the next few years.

Good value?

The current share price of 242p is equivalent to just 1.2 times the group’s net tangible asset value of 197p per share. Measured against earnings, the share price gives a forecast P/E of 8.2. There’s also a prospective dividend yield of 5.2%.

In my view IPF looks attractive at this level. I’d rate the shares as a buy.

The post One 5% yield banking stock I’d buy today appeared first on The Twelfth Magpie.

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Roland Head owns shares of Royal Bank of Scotland Group. The Motley Fool UK has recommended Barclays and HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I believe that this trend is set to continue for many years to come as it continues to work on its reputation as a leading wealth manager. Today it reported that profit before tax, for the year to December 31 increased by 17.6% to £58.9m as funds under management expanded to £39.1bn, up 14.3% year-on-year. By the end of 2018, management hopes to have boosted this figure to £40bn. 

Thanks to the performance of its investment managers, the group should have no trouble reaching this goal. Rathbone manages a portfolio of unit trusts for both its clients and outside investors. These trusts have performed well over the past year, so well in fact that assets managed by the trusts grew by 21.8% for the year to a record of £5.3bn. 

Off the back of these impressive figures, management has hiked the final dividend per share to 39p, giving a full-year payout of 61p, an increase of 7% year-on-year. 

Built for the long-term

Rathbone’s peer, Charles Stanley (LSE: CAY) is another asset manager that I believe could help you make a million. 

It too is benefitting from rising demand for asset management services. For the six months to the end of September, it reported profit before tax increased 53.3% while funds under management rose 1.3% to £24.3bn. Even though the company is still relatively small compared to its larger peer, management believes the business can become “the UK’s leading wealth manager by 2020.” This implies that in the years ahead, the group will be working hard to drive growth in assets under management and profitability, which should be great news for shareholders looking for growth.

The company’s well-established reputation should help the proposition to clients as the business is one of the oldest firms on the London Stock Exchange and has been advising clients on wealth management for over 230 years. 

An investment for all environments 

The great thing about these two wealth managers is that they are well positioned to profit in all market environments. For example, today with markets steadily rising, they’re attracting assets from investors wanting to get in on the action. A higher level of assets should translate into more residual income from investment management. On the other hand, in volatile markets, which might scare new investors away, these two firms will benefit from higher levels of trading commission revenue. 

Put simply, no matter what the market environment, Charles Stanley and Rathbone should be able to generate steady returns for investors for many decades to come. Right now shares in Rathbone support a dividend yield of 2.4% and trade at a forward P/E of 19.3. Meanwhile, Charles Stanley trades at a forward P/E of 13.2 and supports a dividend yield of 3.5%.

The post Buying these two stocks today could make you a millionaire retiree appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

However, within the index there are stocks that could generate even higher returns in future years. One such company is prime housebuilder Berkeley Group (LSE: BKG). Its capital return plan could mean it delivers a high yield for investors, while its low valuation could allow it to generate impressive returns, too.

Dividend potential

Between now and September 2021, Berkeley Group is expected to return capital totalling over £7 per share. This is set to be made up of a mix of dividends and share buybacks, with the company therefore having a potential dividend yield of up to 4.8% at today’s share price. Clearly, this depends on the proportion of the capital return, but the overall picture remains a positive one for its investors.

In fact, returning £2 per share to investors should not be a particularly challenging exercise for the business. In the current financial year, the company is expected to generate earnings per share of £3.51, which means that its £2 per share capital return is set to be covered 1.75 times by profit. This suggests that an even higher amount could be returned to investors in future years.

Capital growth prospects

The share buyback programme seems to be a sound method of returning capital to investors, since Berkeley Group’s shares appear to be cheap. They trade on a price-to-earnings (P/E) ratio of around 12, which suggests that they offer a wide margin of safety.

Certainly, there are risks ahead for the UK housing market. Brexit could cause investor sentiment to come under pressure. However, investors appear to have priced in this risk, while the undersupply of new homes at even the prime price point could mean that there is scope for high earnings growth over the medium term.

Income potential

Of course, Berkeley Group is not the only income stock which may be worth buying. Reporting on Tuesday was wealth management specialist Charles Stanley (LSE: CAY). Its third quarter saw further progress made, with total funds under management rising by 2.5% to £24.9bn. Total revenues in the first nine months of the year were up 7.4% versus the prior year, with like-for-like revenues from continuing activities up 9.1%.

With a dividend yield of 2.3%, many investors may feel that the stock lacks income appeal. However, with its bottom line expected to rise by 45% this year, 52% next year, and then by a further 40% in the following year, dividends are expected to rise by 89% over the next two years. This puts the stock on a forward dividend yield of 4.4%, from a dividend which is due to be covered 2.2 times by profit. As such, it could quickly become a strong income play for the long term.

The post A FTSE 100 dividend stock I’d buy and hold for the long run appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Berkeley Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Favourable trading conditions

Friday’s update from wealth manager Charles Stanley (LSE: CAY) showed that it is making encouraging progress in favourable operating conditions. Funds under management and administration increased by 5.7% versus the end of 2016, and were 17.1% higher than a year prior. Growth was also seen in the company’s discretionary and execution-only funds, which rose by 21.3% and 23.5% respectively when compared to a year ago. And while advisory dealing funds saw modest growth of 5.9%, the company’s overall performance has been upbeat.

Clearly, Charles Stanley has benefitted from favourable trading conditions. Share prices across the globe have enjoyed one of their best starts to a calendar year in some time. Now though, the outlook is changing and there is a reasonable chance that further share price falls could be ahead. As such, the forecast growth rate in the company’s bottom line of 74% this year and 37% next year could be downgraded if operating conditions deteriorate.

Despite this, the company seems to be a worthwhile investment at the present time. It has a price-to-earnings growth (PEG) ratio of just 0.2, which indicates that it offers a wide margin of safety. Therefore, even if the favourable operating conditions of recent months fade in future, its share price could still rise.

Upbeat outlook

Also offering high growth potential at a very reasonable price is diversified financial services company Standard Life (LSE: SL). It is expected to record a rise in its earnings of 57% this year, followed by further growth of 7% next year. As well as high growth, it also offers a range of products and services and operates in a number of geographies. This could reduce its overall risk profile and lead to a more robust earnings profile in the long run.

Despite this upbeat outlook, Standard Life trades on a PEG ratio of just 1.7. This indicates that its share price could rise significantly and still leave it trading at fair value. Given the uncertainty in global financial markets, such a wide margin of safety could prove to be a useful ally for long-term investors.

As well as a low valuation and high growth prospects, Standard Life also has strong dividend growth potential. It currently yields 5.9% from a dividend which is covered 1.4 times by profit. This suggests a sustained rise in dividends could lie ahead, which may cause the company’s shares to become increasingly popular at a time when inflation is edging higher.

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Peter Stephens owns shares of Standard Life. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Aberdeen has been struggling in recent months as outflows from the fund manager’s actively managed investment funds have accelerated. To counter this trend the group has been cutting costs, but there’s only so much fat any one company can lose. At the same time, Standard Life has undergone a transition from a traditional insurer to more of an asset management company. By combining, the two will be able to cut costs faster and offer existing clients a broader range of products.

More deals to come? 

This is unlikely to be the last of these buy-to-shrink deals. As asset managers around the world come under pressure from low cost alternatives, consolidation is widely believed to be the only option left for survival.

Charles Stanley (LSE: CAY) and Hargreaves Lansdown (LSE: HL) are two prime consolidation candidates for different reasons.

Charles Stanley is one of the City’s oldest wealth managers but in recent years the company has come under pressure from the rise of low-cost online brokers. This shift has prompted management to reorganise the business into a bespoke wealth manager, which has reversed the sales decline. 

The City expects the company to report pre-tax profits of £7.6m for the year ending 31 March 2017, rising to £13.2m for the year after. If the company hits City growth targets, earnings per share are expected to grow by nearly 140% over the next two years.

This growth could attract a suitor looking to take advantage of Charles Stanley’s position in the City and leverage its physical presence to expand. With a market capitalisation of only £160m, the firm is relatively small compared to other wealth managers such as Hargreaves Lansdown (£6.3bn) and could be an easy snack for a much larger peer that is looking to expand into the high net worth wealth management business.

Wide margins 

Hargreaves Lansdown is one of the low-cost online brokers giving Charles Stanley a hard time and for this reason, the company could become a takeover target itself.

Its most attractive quality is the company’s hefty profit margin which stands head and shoulders above the wider industry average. 

Specifically, according to the Office for National Statistics, profit margins for non-financial companies are about 12%. Hargreaves Lansdown booked a profit margin of more than 70% in its last results release. On revenue of £185m the company made a profit of £131m. With such hefty margins it’s easy to see why the firm’s market capitalisation eclipses that of Charles Stanley. Shares in the firm currently trade at a forward P/E of 30.6 and earnings per share are expected to grow 14% this year. 

If Hargreaves Lansdown is already reporting a profit margin north of 70%, potential acquirers must be wondering how lucrative the business will be when synergies from any potential merger are realised. Buying the business may be a no-brainer decision.

The post After the Aberdeen-Standard tie-up, could these asset managers be in play? appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
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Rupert Hargreaves owns shares of Standard Life. The Motley Fool UK has recommended Hargreaves Lansdown. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.