AB: The 9% Yield Will Get Cut – And That’s Okay

AllianceBernstein (NYSE: AB) is an investment management firm with $643 billion in assets under management. It offers mutual funds, closed-end funds, managed accounts, sell-side research, institutional trading, and other services.

Based on the current quarter’s distribution, it yields a robust 9%. But can this respected finance firm maintain its distribution?

The simple answer is “probably not”. But not because it’s experiencing financial difficulty.

AllianceBernstein has a variable distribution policy. The company is set up as a partnership, so it pays a distribution, not a dividend.

As you can see, over the last 10 years, the quarterly distribution has ranged from a low of $0.12 to a high of $0.85.

AllianceBernstein's Variable Distribution

So investors shouldn’t expect the same payout every quarter. Additionally, the February distribution tends to be the highest of the year, so the one paid in May is likely to be lower.

As a partnership, AllianceBernstein pays out all or nearly all of its profits in distributions.

Normally, when examining a company’s payout ratio, I use cash flow or a version of cash flow specific for the industry to calculate dividend safety.

In AllianceBernstein’s case, I’m using net income because that is the main metric that it reports.

Last year, the company made $242 million, which was less than the $258 million from the prior year. It paid out 91% of its profits in distributions.

This year, net income is expected to rise, which is positive for income investors.

I wouldn’t be surprised to see investors get paid more in the next 12 months than they did in the previous year. Although, with a variable distribution policy, that is hardly a sure thing.

You can almost definitely count on a lower distribution next May than what will be paid next February.

The company appears healthy, and I don’t expect a significant slash to the distribution. But investors should be aware that the quarterly payout is not consistent and will be lower in some quarters and years.

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