Investing with TD Ameritrade

06/12/2019 5:00 am EST


Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

In May of 1975, the SEC deregulated the securities industry allowing brokerage firms to set their own commission prices for buying and selling stock, paving the road for the discount broker, notes Ingrid Hendershot, money manager, value investing specialist and editor of Hendershot Investments.

Later that year, TD Ameritrade (AMTD) opened its doors as First Omaha Securities — providing industry low transaction fees of $25 per 100 shares traded.

Shortly after its IPO in 1997, the company introduced their “Eight Bucks a Trade” advertising campaign. The campaign was a resounding success with the number of client accounts soaring more than 450% by 1999.

The company also became the first to offer trading via a mobile device in 1999 and within four years, 10% of daily trading volume would be completed using mobile devices. Today, TD Ameritrade is a market leader with approximately $1.3 trillion in client assets and completes over 850,000 trades per day.

During the past five years, TD Ameritrade has grown revenues at a robust 15% annual rate. During the same period, net income and EPS have compounded even higher at 17.0% and 16.2% annual rates, respectively.

Since 2014, client accounts and client assets have grown at 16.3% and 18.7% annualized rates, respectively. At the end of fiscal 2018, client accounts stood at 11.5 million and client assets were $1.3 trillion. Average client trades per day were 811,110 during 2018 with a 17.4% annual growth rate over the past five years.

TD Ameritrade’s profit margin averaged nearly 25% during the last decade, including an outstanding 27% during 2018. Return on equity has averaged more than 16% for the last ten years, demonstrating the company’s ability to consistently generate profits in an increasingly competitive market.

TD Ameritrade has increased their dividend every year since inception of the dividend payment in 2011 with the dividend compounding at a 15.0% annual rate during the past five years. For fiscal 2019, the company increased the dividend payment 42.9% to $1.20 with the dividend currently yielding 2.3%.

During 2018, TD Ameritrade generated $1.7 billion in free cash flow and returned $732 million to shareholders through dividends of $477 million and the repurchase of 4.6 million shares for $255 million at an average cost of about $55.52 per share.

During fiscal 2019, the company plans to return between 30% to 40% of non-GAAP net income to stockholders through cash dividends and up to an additional 40% through share repurchases.

Long-term investors should not discount industry disruptor TD Ameritrade, a high-quality market leader with highly profitable operations and double-digit sales, earnings and dividend growth Buy.

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