Friday, June 15, 2012

Charles Schwab (SCHW) 2012 Review

Charles Schwab Corp (SCHW) is a holding company whose primary subsidiary is Charles Schwab and Co, a large retail discount securities broker serving almost 8 million investors with approximately $1.57 trillion in assets.

The company has earned a 10-15% return on equity over the last five years while growing profits and dividends between 10-20%. SCHW experienced difficulty during the recent downturn. However, the company should resume earnings growth this year as a result of:

(1) expansion of its product offerings such as its recent acquisition of Windward Investment Management which will allow it to offer low cost managed account,

(2) acquisitions,

(3) its low level of debt provides flexibility in financing growth and dividends.

(1) it is very sensitive to movement in interest rates,

(2) rising uncertainties could result in lower retail trade volumes,

(3) the potential impact of Dodd Frank

The company is rated A by Value Line, has a capital structure that contains only 21% debt and its stock yields approximately 1.9%.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2002
SCHW 1.9% 6% 33% 7
IND 1.2 6 12 NA

Debt/Equity ROE EPS Down Since 2002 Net Margin Value Line Rating
SCHW 21% 12% 2 21% A
IND 16 11 NA 13 NA


Note: SCHW stock has made little progress from its March 2009 low. While it quickly surpassed the downtrend off its September 2008 high (red line), it has never challenged the November 2008 trading high (green line). Long term, the stock is in a trading range (the straight blue line is the lower boundary). Intermediate term, it is also in a trading range (the lower boundary is the same as the long term trading range lower boundary; the upper boundary is the purple line). On a very short term basis, it is in an uptrend. The wiggly blue lines are Bollinger Bands. The Dividend and Aggressive Growth Portfolios own a full position in SCHW, though they have traded the stock several times: Buying in early 2009 at $11/12, a trading Sell in early 2011 at $15/17, repurchasing recently at $11/12. The upper boundary of its Buy Value Range is $12; the lower boundary of its Sell Half Range is $38.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.