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Principal Financial Group Inc.’s (PFG - Analyst Report) 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 investors.

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.

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 2018.

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. (AB - Snapshot Report), Lazard Ltd. (LAZ - Analyst Report) and Fortress Investment Group LLC (FIG - Snapshot Report). While AllianceBernstein Holding sports a Zacks Rank #1 (Strong Buy), Lazard and Fortress Investment carry a Zacks Rank #2 (Buy).

Read the Full Research Report on PFG
Read the Full Research Report on FIG
Read the Full Research Report on LAZ
Read the Full Research Report on AB

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