Affiliated Managers Group Finishes 2016 Strong, Sets First Dividend

By Dan Caplinger Markets Fool.com

The investment management industry does best when markets cooperate, and Affiliated Managers Group (NYSE: AMG) has had to navigate choppy waters in the finance world lately. Yet with the end-of-year rally in November and December, many of those following AMG believed that the company would be able to bounce back from difficult times. Coming into Monday's fourth-quarter financial report, AMG shareholders were prepared for a revenue drop but hoped that its bottom line would show modest gains. For the most part, the company made good on those expectations, and it initiated a quarterly dividend as part of its overall strategy to return capital to investors.

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Let's look more closely at Affiliated Managers Group to see how it's been doing lately.

Image source: Getty Images.

AMG keeps climbing higher

Affiliated Managers Group's fourth-quarter results reflected the tough conditions in the financial industry and the company's efforts at overcoming them. Revenue was down 7% to $550.3 million, and that was worse than the roughly 4.5% decline that most investors had expected to see. Yet as we've seen in past quarters, AMG managed to boost its economic net income by nearly 8% to $211.2 million, and that produced adjusted economic earnings per share of $3.80. That was up from last year's level and better than the consensus forecast for $3.71 per share.

Taking a closer look at the numbers that Affiliated Managers Group posted, the manager had to deal with investor anxiety and its impact on its available assets. Net client cash outflows amounted to $4.1 billion as mutual fund investors were primarily responsible for the nervousness during the fourth quarter. Flows from the institutional and high net worth segments were roughly flat. The decline ate into AMG's full-year inflows of $7.4 billion, driven largely by high net worth individuals. The company finished with $727 billion in assets under management on a pro forma basis, which was down slightly from the record level that AMG posted in the third quarter of 2016.

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Part of Affiliated Managers Group's success came from better cost containment. Compensation expenses were down 4%, helping to lead a similar decline in overall operating expenses. Still, a sizable jump in income tax liability weighed on net income.

CEO Sean Healey expressed his satisfaction with the way that 2016 ended. "Against the backdrop of earnings declines across the asset management industry broadly," Healey said, "we continued to produce growth in our earnings, even with only a partial impact from investments closed during the second half of the year." The CEO pointed to organic growth and the strong investment performance of the company's existing and new affiliates in pushing AMG forward.

What's ahead for AMG?

Affiliated Managers Group thinks that the environment for money managers will only get better. As Healey described it, "Given increased dispersion of asset returns and post-election expectations for regulatory reform and economic growth, high-conviction active managers are positioned to outperform passive products."

However, a slight decline in guidance wasn't what some investors wanted to see. The company cut its earnings projections by $0.25 per share, projecting between $13.75 and $15.75 per share in economic earnings for 2017. AMG attributed the revision to lower assets under management than expected and a slightly higher share count. Moreover, the company will only give guidance at the beginning of the year from here on out.

Still, investors were pleased to see that the company decided to start paying a dividend. The $0.20-per-share quarterly payout won't be very rewarding, amounting to a dividend yield of just over 0.5%. But in conjunction with an increase in AMG's stock buyback program to 4 million shares, the manager appears likely to keep returning capital to investors aggressively.

Affiliated Managers Group shareholders were fairly happy with the news, sending the stock up around 2% in morning trading following the announcement. If the financial markets are able to overcome turbulence and produce continued strong results in 2017, then AMG will be in a position to see its fundamental business grow going forward.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Affiliated Managers Group. The Motley Fool has a disclosure policy.