DGI Adventure – 09-21-2015 Limit Order Placed – Eaton Vance Corporation (EV) – $33.25/share

Dividend Cycle

Eaton Vance is due to announce their final dividend of 2015.
Typically they announce this dividend sometime in the middle of October, with
an ex-dividend date towards the end of the month, and the dividend pays out in
early November. For the last four quarters (Oct
2014 – July 2015) the dividend has been $0.25/share making it an even
$1/share annual dividend. If the last 34 years are any guide, the next dividend
is probably going to be more than $0.25/share. Eaton Vance is a dividend
champion and they’ve raised their dividend 34 consecutive years. If they raise
it again, (and I’m guessing they will) it will make 35 years. That’s longer
than I’ve been alive.

Investment

I would like to be a shareholder of record for that next
ex-dividend date, which is why I placed a limit order today for 45 shares @ $33.25/share
for a total investment of $1,503.20 (including $6.95 trade commission). That
limit order only represents a ~4% discount to today’s closing price of $34.66.
Why do I want to be a shareholder of record?

The QC (Quantitative
Case)

Payout Ratio

48.08%

10 year Revenue CAGR

9.26%

10 year EPS CAGR

11.59%

5 year ave P/E – Current P/E (ttm)

+3.06

5 year ave Yield – Current Yield

-.49%

15 year mean DGR (dividend growth rate)

18.00%

Debt / Market Cap

$578M / $3.9B

Total cash

$754M

Return on Assets (ttm)

18.11%

Return on Equity (ttm)

34.98%

Profit margin (ttm)

17.35%

EBITDA / Revenue

$523M/$1.4B (37%!)

Reverse DDM Fair Value DGR at buy price

7.0%

Assumed DGR (DDM valuation 10% disc.)

8.0% ($50.00/share)

DGR margin of safety

1.0%

 LOL (Limit Order
Logic) – $33.25

This is just over the 52week low which was hit intraday in
the last couple of weeks. Closing price has actually bounced twice in the low
$33’s since August 24. You have to go all the way back to the spring of 2011 to
find any technical support at this level, and that was the 52 week high in
2011, before the European debt “crisis” dragged everything back down. It
wouldn’t get back over that level until 2 years later, where it shot straight past
it. $33.33 also happens to be the share price where the current dividend
represents a 3% yield. 3% yield is psychologically important to me, so it felt
like a good number that’s greedy but not too greedy based on the current price.
Could it keep on plummeting past that and get back to the dire straits of
$27/share of late 2011? Yup. Could it just shoot up from here and never touch
the low $30’s again? Yup. That uncertainty is what I get for bottom fishing.
I’m okay with that. Yeah yeah…thou can’t time the market, so thou shall not try
to. Whatever. Thanks, Dad.

For now I expect volatility between now and the next FOMC
meeting (also in mid-October) as once again everyone will be preoccupied with
the utterly stupid yet somehow gripping question of “will they or won’t they”
in regards to the fed and interest rate liftoff. I don’t give two shits about a
potential 0.25% rate increase, but there is a lot of volatility right now,
which means I’m okay with wide spreads on my limit orders…this is actually one
of the tighter current limit orders. The logic behind it being tighter has to
do with the ticking ex-dividend clock.

QWaF (Qualitative Warm and Fuzzy)

I hate wealth management firms. I think mutual funds are a
total rip off. I think the fees they charge are outrageous for products that
rarely outperform the market. Eaton Vance embodies all that I hate about the
wealth management industry. Which means they’re ridiculously profitable at it,
and have been for over 70 years. So instead putting my money into Eaton Vance’s
mutual funds and paying them 1.5%+ expense ratios, I’ve decided to buy their
stock for one-time commission of less than 0.5% on the open market and have
them pay me a 3% yield. Their track record of paying increasing dividends for
the last 34 years makes me feel pretty confident that my invested yield will
ultimately be a lot more than that. Their new line of ETMFs (exchange-traded
managed funds) sounds like an innovative new way rip investors off, and they’re
at the forefront of that whole boondoggle.

Eaton Vance currently has approximately $312B in AUM (assets
under management), and they pocket ~$1.4B+ of that in fees…every year. I’m not
licensed to charge people for financial advice or sell investment products…and
I wouldn’t feel right doing it. BUT Eaton Vance can, and their shares are
available on the open market and they pay shareholders a dividend, so you know
what? I can collect some of those fees…and I plan to thank you very much.

CPR (Cold and Prickly
Risks)

Mr. Market is moody and fickle and jittery and well you
know…bat shit crazy. There’s a lot of fear right now, and wealth management
companies like Eaton Vance wither and die if people ask for their money back.
AUM is key, and must continue to increase if the dividends are going to
increase. Poor fund performance, poor management, poor market conditions, poor
whatever…if it causes people to cash in on their shares of EV funds and AUM
goes down…that’s muy malo for this investment thesis.

The last 34 years of EV dividend increases correspond to the
exponential balloon-like growth of total wealth invested in the stock market…which
had an awful lot to do with the Electric Kool-Aid 401K Retirement Test. Of
course if more people are cashing in their chips than buying in it’s bad for
the whole damn casino…but it’s especially bad for companies like Eaton Vance who
would feel it particularly more intensely than companies that actually make or
do something.

Morningstar rates EV’s “moat” as “wide”, and points to the
high switching costs and general inertia issues as a sound argument for this
being low on the quantitative risk scale and merely medium on the qualitative
(analysts) scale. Of course Morningstar needs everyone to keep drinking the
kool-aid too, but that’s really a different issue altogether.

This plus my anticipated TROW investment and my 30 WHG
shares will probably cap out my exposure to wealth management firms for a
while.

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