Schwab is a vertically integrated custodian that has shown strong organic asset growth, earning revenue on deposits, low-cost Schwab ETFs, trading and advisor network.
- Strong AUM growth: Schwab has averaged 6% organic core net new asset growth as retail clients and advisors are attracted to Schwab’s low cost trading and custody services.
- Vertically integrated: Schwab earns revenue from spread on deposits, low-cost ETFs, advisor fees and trading.
- Defensive: Deposit revenue should increase when stock markets falls as investors tend to increase cash holdings during periods of stress.
- Return of capital to shareholders: Schwab is on the cusp of increasing excess capital which they plan to return to shareholders. Over the next year, management expects cap-ex growth to slow to 3-5% from current 6-7% growth. Expect a 20%-30% payout ratio for dividends (1.7%) and management has approved a $4b share buyback which could amount to 4% to 5% of shares.
Here is the presentation: Schwab Initiation
Thanks,
John