Principal Financial Group Inc
) increased focus on fee-based businesses, driving an upsurge in
the top line, continued to boost results at the company. About
63% of total operating earnings came from fee-based businesses in
2013. Moreover, a fee-based business model limits exposure to the
interest rate environment.
Enhanced focus on fee-based revenues will also enable the company
to return more to its shareholders. Principal Financial's capital
deployment through share buybacks and dividend payment looks
impressive, making it an attractive pick for yield-seeking
With a fresh 8% approval in quarterly dividend affected
recently, the company's dividend has increased more than 55% over
the 2012 payout. It also expects to deploy $500-$700 million for
quarterly dividends, strategic acquisitions and share buybacks as
well as deleverage its balance sheet. Over the long term,
Principal Financial estimates spending 65% to 70% of its net
income in such activities.
ALLIANCEBERNSTN (AB): Free Stock Analysis
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PRINCIPAL FINL (PFG): Free Stock Analysis
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After a long wait, Principal Financial was deregistered as a
savings and loan holding company in December last year. This in
turn has freed the company from supervision by the Federal
Reserve Board as well as heightened its focus on providing
investment management solutions.
In order to grow inorganically, management intends to utilize a
significant portion of its operating earnings for merger and
acquisitions. Given the strategic acquisitions that the
company had undertaken, its inorganic growth story also looks
attractive. However, lower-than-expected earnings accretion from
the acquisitions might weigh on overall results.
The company's AUM 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
However, low interest rates continue to weigh on the results of
Principal Financial's net investment income.
The company's increasing debt level compounded with lower cash
balance remains a concern.
With respect to earnings performance, Principal Financial
delivered positive surprises in all of the last four quarters
with an average beat of 5.75%.
Principal Financial carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better-ranked investment managers worth reckoning are
AllianceBernstein Holding L.P.
Fortress Investment Group LLC
). While AllianceBernstein Holding sports a Zacks Rank #1 (Strong
Buy), Lazard and Fortress Investment carry a Zacks Rank #2