As I mentioned earlier this week, I’m currently building my $100K retirement portfolio. In the upcoming weeks, I’ll buy shares of 20 different companies. This morning, I share with you 1 quick analysis of my first purchase: 102 shares of Lazard (LAZ):
Quick Stats:
COMPANY NAME (TICKER): LAZARD (LAZ)
TYPE OF HOLDING: CONSERVATIVE
SECTOR: FINANCIAL SERVICES
CURRENT DIVIDEND YIELD: 3.72%
5 YEAR REVENUE GROWTH: 4.99%
5 YEAR EPS GROWTH: 14.65%
5 YEAR DIVIDEND GROWTH: 19.75%
PAYOUT RATIO: 77.96%
Business Model
Lazard, together with its subsidiaries, operates worldwide as a financial advisory and asset management firm. Financial Advisory segment offers services regarding mergers and acquisitions, strategic advisory matters, etc. LAZ was founded in 1840 and manages over $189B. It is well known for its experience in asset management and in M&A.
What Makes It a Great Company
- In recent years, quarterly dividends paid almost tripled and LAZ should continue increasing its payout in the future.
- The M&A industry should keep doing well and LAZ will greatly benefit from its unique expertise in this field.
- LAZ is much diversified and revenue sources enable a better stability during potential economic downturns.
Investment Thesis
LAZ is a relatively new dividend grower and is not even part of the Dividend Achievers list. Still, with a dividend yield of 3.72% on top of some special dividend payments, LAZ is an interesting stock to hold. Lazard has the largest geographic footprint in the mergers and acquisitions field. On top of its M&A business, LAZ is known for its restructuring financial advices services. Therefore, regardless if the market goes well (which encourages M&A) or if it slows down (which encourages restructuring), LAZ will find a profitable niche.
Valuation
| Intrinsic Value | Discount Rate (Horizontal) | ||
| Margin of Safety | 9.00% | 10.00% | 11.00% |
| 20% Premium | $95.17 | $67.66 | $52.39 |
| 10% Premium | $87.24 | $62.02 | $48.05 |
| Intrinsic Value | $79.31 | $56.38 | $43.66 |
| 10% Discount | $71.38 | $50.75 | $39.29 |
| 20% Discount | $63.45 | $45.11 | $34.93 |
Potential Risks
While Lazard has been quite efficient in its niche market, the company is relatively small compared to other big players. LAZ market cap is $5.5 billion compared to $67 billion for BlackRock (BLK). This creates a situation of vulnerability in the event of market fluctuation or deceiving economic news.
Dividend Growth Perspective
While LAZ payout ratio seems high, its cash payout ratio is very low (44.04%). Therefore, you can expect LAZ to continue its 6-year streak with a dividend increase announcement. Management has also started to pay special dividend three years ago. While our calculations don’t include these special payments, they surely please many shareholders.
What do you think of Lazard? Has it been on your radar?
As you mentioned payout ratio is high. Otherwise, looks decent buy. 3.72% yield is awesome.
This is why I mentioned the cash payout ratio. The payout ratio is based on earnings, which based on accounting principles, not real cash.
cheers,
Mike.
DG –
Never has hit my radar but seems like in good/bad times, they will be profitable. I like the cash payout ratio and you seem to be in good hands there. Very interesting play, I’ll have to read more about them, as the market for M&A; at least in banking; is heating up. I dig it.
-Lanny
Yeah, it’s a bit of an “unconventional” play in the dividend world, but I think it’s really worth it!
Cheers,
Mike.