Key acquisitions set this company up to better serve public companies and their rising need to reach out to investors.
At the same time, its strong balance sheet and its 2.0% dividend yield keep this company a winner for investor.
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BROADRIDGE FINANCIAL SOLUTIONS INC. (New York symbol BR; www.broadridge.com) serves the investment industry in three main areas: investor communications, securities processing and transaction clearing.
The company has raised its dividend each year since Automatic Data Processing spun it off to its shareholders in 2007. With the October 2019 payment, Broadridge raised the quarterly dividend for its own investors by 11.3%. They now receive $0.54 a share instead of $0.485. The new annual rate of $2.16 yields 2.0%.
As an independent company, Broadridge has spent roughly $700 million buying 13 smaller firms. In fiscal 2019 (fiscal years end June 30), it spent $400 million on three acquisitions. They include RPM Technologies, a tech company focused on the Canadian wealth management market.
In January 2020, Broadridge announced that it had acquired U.K.-based FundsLibrary, a leader in fund documentation and data dissemination in the European market. The acquisition helps global fund managers meet regulatory requirements throughout the EU and U.K.
Thanks in part to those new operations, revenue gained 61.9%, from $2.69 billion in 2015 to $4.36 billion in 2019. If you exclude integration costs and other unusual items, overall earnings jumped 92.8%, from $287.1 million in 2015 to $553.6 million in 2019. Due to fewer shares outstanding, earnings per share jumped at a faster rate of 100.9%, from $2.32 to $4.66.
In its fiscal 2020 second quarter, ended December 31, 2019, Broadridge’s revenue rose 1.7%, to $969 million from $953 million a year earlier. That’s due to recent acquisitions that boosted its recurring fee revenue by 7.3%. Strong recurring revenues cuts the risk to investors.
Excluding one-time items, Broadridge’s earnings declined 7.1%, to $62.4 million from $67.2 million; earnings per share fell 5.4%, to $0.53 from $0.56, due to fewer shares outstanding.
The company’s backlog at the end of the quarter totalled $330 million, much of it recurring. That cuts your risk. However, these quarterly results don’t reflect the COVID-19 outbreak and the resulting economic shutdown that has impacted businesses worldwide.
Broadridge projects it will expand its recurring fee revenue by 7% to 9% per year over the next three years. It also aims to increase its earnings per share, before unusual items, by 14% to 18% in each of the next three years.
The strong balance sheet is another plus for investors. The company ended the latest quarter with cash of $234.0 million, or $2.04 a share, while its long-term debt of $1.4 billion is a low 11.4% of its market cap.
The stock trades at an attractive 21.6 times its earnings estimate of $5.05 a share for fiscal 2020 (ending June 30).
Recommendation in Dividend Advisor: Broadridge Financial Solutions Inc. is a buy.
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