Charles Schwab Worked to Strengthen Advisory, Client Assets in 3Q15
Equity returns
Charles Schwab’s (SCHW) stock has returned 4% over the past three months and is trading at 7% below its 52-week high. The company is focusing on services and technology to add new clients and assets. It has substantially improved its client assets, daily average trades, and net interest income.
The company declared a dividend of $0.06 per share, translating into an annualized yield of 1.2%. Its peers in the brokerage industry have the following dividend yields:
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Interactive Brokers (IBKR) has a 1.06% dividend yield.
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TD Ameritrade Holding (AMTD) has a 1.58% dividend yield.
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E*TRADE (ETFC) doesn’t pay dividends.
Together, these companies form 10.80% of the iShares US Broker-Dealers ETF (IAI). Charles Schwab is expecting to maintain a 20%–30% payout of earnings in the upcoming quarters.
Valuations improve
Currently, Charles Schwab is trading at 24x on a one-year forward earnings basis. Its peers in the brokerage industry are trading at a 22x average. Historically, the company has traded at a premium to its peers because of its strong brand, large client base, and diversified assets.
Its valuation improved significantly over the past month mainly due to higher client assets in October 2015. Its client assets expanded by 5% to $2.5 trillion as compared to the previous month. The company also saw 88,000 new brokerage accounts during the month, up by 10% on a month-over-month basis.
Historically, Charles Schwab has traded in the range of 21x–29x on a one-year forward earnings basis. The company will likely benefit from an increase in volatility on account of fluctuating oil, commodities, and exchange rates. The trading activity in the US equity market is expected to be impacted by an interest rate hike.
Focusing on advisory
Charles Schwab is focusing more on increasing client assets through advisory-based products, innovative ways of providing wealth management and retirement services, and deployment of technology for retail as well as institutional clients.
The increase in volatility due to global factors or a delayed hike in interest rates will likely positively impact the company’s trading revenues. Charles Schwab is expected to benefit due to its strong brand, innovative solutions, and banking products.
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