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Virtus Investment Hikes Dividend 22%: Time to Buy the Stock?

Zacks Equity Research

Virtus Investment Partners, Inc. VRTS has increased its regular quarterly cash dividend. The company announced a dividend of 67 cents per share, representing 22% hike from the prior payout. The dividend is payable Nov 14 to shareholders on record as of Oct 31.

Based on this, Virtus Investment’s dividend yield is 2.79%, considering last day’s closing price of $95.96. This marks the second consecutive hike by the company, since initiating dividend payouts in May 2014. Last year also it had increased dividend by 22% to 55 cents per share.

Additionally, Virtus Investment has a share repurchase authorization in place. As of Jun 30, 2019, nearly 0.4 million shares remained available for buyback. Thus, the company is able to enhance shareholder value through efficient capital deployment actions.

Also, the company’s price performance looks impressive. Its shares have rallied 20.8% so far this year, outperforming the industry’s rise of 6.6%.


 

The stock looks attractive based on the regular rise in dividend income and solid price performance amid challenging operating backdrop. But let’s check out Virtus Investment’s fundamentals and financial performance before taking any investment decision.

Here are some of the factors that one must consider:

Revenue growth: Organic growth remains a key strength for Virtus Investment, as reflected in its revenue growth story. Revenues witnessed a 5.2% CAGR over the last five years (2014-2018), driven by steady increase in assets under management and inorganic growth strategy. The uptrend will continue, with the top line expected to increase 2.4% for 2019 and 1% for 2020.

Earnings strength: Virtus Investment witnessed earnings growth of 6.9%, over the last three-five years. This momentum is expected to continue in the near term, as evident from its projected earnings growth rate of 12.9% and 3.3% for 2019 and 2020, respectively.

Further, the company’s long-term (three to five years) expected earnings growth rate of 5% promises rewards for shareholders.

Also, the stock carries a Growth Score of B. Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best upside potential.

Superior Return on Equity (ROE): Virtus Investment’s ROE of 21.29% compared with the industry average of 13.24% indicates the company’s commendable position over its peers.

Stock seems undervalued: Virtus Investment stock looks undervalued with respect to its price-to-book (P/B) and price-to-earnings (P/E) ratios. It has a P/B ratio of 1.20 compared with the industry average of 1.44. Also, P/E (F1) ratio of 6.88 is below the industry average of 11.01.

Rising expenses: Mounting non-interest expenses pose a concern for the company. Over the last five years (2014-2018), expenses witnessed a CAGR of 8.2%. As the company continues to invest in franchise, overall expenses are expected to remain elevated.

Our Take

Based on the above-mentioned factors, it seems to be a wise decision to add Virtus Investment stock to your investment portfolio.

In addition, its Zacks Consensus Estimate for earnings has revised upward by 3% and 3.5% for 2019 and 2020, respectively, over the past 30 days. Further, the stock currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Some other finance companies that raised dividends over the past three months are Washington Federal, Inc. WAFD, BancorpSouth Bank BXS and Huntington Bancshares HBAN. These companies hiked quarterly dividends in the range of 5-9%.

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