Have £3,000 to invest? A FTSE 100 dividend stock I’ve bought and will never sell
Towards the end of last year, I took the opportunity to snap up shares in a FTSE 100 dividend stock I’d been watching for some time. This company is a global leader in its field, has been around since the early 1800s, and still counts its founding family as a significant shareholder. The business is wealth manager Schroders (LSE: SDR).
A family business
Founded in 1804, Schroders has grown to become one of the world’s premier asset managers. According to its latest assets update at the end of September, the group was looking after £450bn for clients around the world. The figure was up around 10% since the beginning of the year.
I believe a key reason why it’s has been able to grow into such a size is its owner-operator culture. The founding family still owns just under 50% of the shares and are represented on the board of directors by Leonie Schroder, a descendant of John Henry Schroder, co-founder of the business.
Research shows public companies that are still majority-owned by their founders tend to outperform over the long term. It seems that with this structure, managers can make long-term decisions safe in the knowledge their investors won’t rebel if they ignore short-term profitability in favour of extended period growth.
This approach seems to be working so far. Since 2013, earnings per share have grown at a compound annual rate of 9.2%, and the group’s dividend to shareholders has increased at a compound annual rate of 14.5%.
The next big challenge for Schroders will be cracking the American market. At present, only 15% of assets under management are run on behalf of clients there. Management wants to change this. Last year, it attracted $3bn of new business from North America, and the group has made some critical changes to the region’s management team in 2019.
As well as expanding across the Atlantic, Schroders’ joint venture with Lloyds Banking Group, which is set to launch this year, will help increase distribution in the middle of the market across the UK.
On top of these initiatives, I think the company will also benefit from the growing demand for pension and wealth management services around the world, particularly in North America and China.
An opportunity for investors
Schroders’ outlook is bright, but the shares don’t come cheap. They’re currently dealing at a forward P/E of 16.1. However, due to a quirk in the company’s capital structure, you can own a share in this business with just 12.2 times forward earnings.
You see, Schroders has two classes of stocks. They’re virtually the same, apart from the fact one comes with voting rights and the other doesn’t. Schroders PLC Non-VTG (LSE: SDRC) is the second class of shares. This non-voting class of shares isn’t only cheaper but comes with a higher dividend yield as well. They currently support a yield of 4.8% compared to the voting class’s 3.6%.
So that’s why I think Schroders could be an excellent investment if you have just £3,000 to invest today. You could own part of this world-class business for only 12.2 times earnings and pick up that market-beating dividend yield at the same time.
Rupert Hargreaves owns shares in Schroders (Non-Voting). The Motley Fool UK has recommended Schroders (Non-Voting) and Lloyds Banking Group. 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.
Motley Fool UK 2019