On Jul 1, 2014, shares of Principal Financial Group Inc. (PFG) scaled a 52-week high of $51.23 on the strength of the sustained solid operational performance. With about 1.24 million shares exchanging hands in the last trading session, shares gained 0.97% to close at $50.97.
The one-year return from the stock came in at 36.1%, which was ahead of the S&P’s return of 22.8%.
Riding on the strength of improvement in the fee-based business, this Zacks Rank #2 (Buy) investment manager delivered a positive surprise in the last four quarters, with an average beat of 8.2%. The maximum surprise of 15.2% was posted in the last reported quarter.
Principal Financial’s asset under management shows a steadily increasing trend driven by better results at three asset management and asset accumulation segments. Principal Financial expects total AUM to grow at 15% CAGR from $302 billion in second-quarter 2013 to $650 billion in 2018. In addition, more focus on the fee-based business model limits exposure to the interest rate environment.
Principal Financial has heightened its focus on enhancing shareholders’ value. With the latest 14% hike approval in quarterly dividend, the payout has increased at a 2-year CAGR of 53%. Its dividend yield also betters the industry average. The company intends to pay out 40% of its operating income as dividend, going forward.
This, in a way, helps to retain investor confidence in the stock as well as attract new investors. The company plans to deploy $500–$700 million for quarterly dividends, strategic acquisitions and share buybacks as well as to deleverage its balance sheet. Over the long term, Principal Financial estimates spending 65% to 70% of net income in such activities.
Principal Financial has been witnessing rising estimates over the last few weeks. The Zacks Consensus Estimate is current pegged at $4.10 for 2014 and $4.37 for 2015. These represent a year-over-year increase of 15.3% and 6.7% for 2014 and 2015, respectively. The expected long-term growth rate for the stock is 11.7%.
Other Stocks to Consider
Investors interested in investment managers can also look at BlackRock, Inc. (BLK), Janus Capital Group, Inc. (JNS) and T. Rowe Price Group, Inc. (TROW). All these stocks share the same Zacks Rank as Principal Financial.