Oaktree Capital Group: 5% Dividend Yield And Growing Assets

Investors looking for high yield in the financial sector typically have to look beyond the big banks and insurance companies.

While there are several financial stocks represented in the Dividend Achievers, they mostly have dividend yields in the 2%-3% range.

The Dividend Achievers includes 265 stocks that have raised their dividends for at least 10 years in a row.

Oaktree Capital Group (OAK) is not on this list, because it has an uneven dividend history. It pays a variable distribution, which fluctuates depending on the performance of the business.

But, it has a high dividend yield of 5.2%, which is well above the financial sector average yield.

This article will discuss Oaktree’s business model and future growth prospects.

Business Overview

Oaktree is an asset management firm, with a focus on alternative investments. It seeks a superior return with a lower level of risk than standard investment options can generate.

Some of the asset classes the firm invests in include corporate debt, distressed debt, real estate, and more.

(Click on image to enlarge)

OAK Overview

Source: 2017 Quarterly Investor Presentation, page 3

Oaktree’s fund types include both open-end and closed-end, and evergreen funds. The company has offices in 18 cities around the world.

At the end of 2016, the company held $101 billion in assets under management.

It has a diverse client base, which includes pension funds, insurance companies, corporations, endowments, and high net worth individuals.

It also has a 20% ownership stake in DoubleLine Capital.

Oaktree’s funds have performed well over the past several years, which has driven growth of assets under management.

(Click on image to enlarge)

OAK Performance

Source: 2017 Quarterly Investor Presentation, page 5

For example, AUM rose 4.1% last year, and grew 35% over the past five years.

Oaktree is structured as a partnership. This means its investors are considered unitholders, and the company pays a distribution.

1 2 3 4
View single page >> |

more

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.
JayS 3 years ago Member's comment

I think that the author doesn't completely understand what OAK is. One statement, that assets could flee in a market down-turn, is highly unlikely. Most of the fee generating assets are locked in for 10 years +/- investment periods. A market catastrophe such as that which we went trough in 2008 and 2009 was the trigger for the largest fund raising in the firms history. In fact the huge incentive income received in 2012 and 13 was the direct result of the investments made during and as a result of the financial collapse.

The more recent drop in distributions is partially the result of large portions of those fund's assets having been returned to investors.

On another point, he states that OAK has 1.22 times earnings coverage of the distribution. While that is true, It mean nothing! OAK choses to distribute that percentage of quarterly earnings. That ratio would never be in doubt. That is the whole reason why the distribution is highly variable.

Comparing OAK's price to earnings to the S&P 500's P/E isn't of much use. I don't think there is a simple financial metric that can be used to determine the value of an OAK unit.

The partnership's value can only be determined by the future investment results of each of its individual funds since the bulk of the company's value is the value of its investment success (incentive pay), the retention of skilled managers and its ability access large pools of capital when markets provide the proper conditions for OAK to

profitably put that capital to work.

You mention that OAK owns 20% of Double Line. The ability of OAK to establish that position shows how hard it is to use financial metrics to value OAK. Before that transaction, valuing OAK units based on any financial metric would never have told you that OAK would be called on to provide the capital to Double Line at such advantageous terms. It was the personal connections between the managements of the two companies, the ability of OAK to fund the transaction at short notice and OAK's ability to quickly evaluate the opportunity and complete the transaction. What financial metric can be used to evaluate that?

Sensible Cents 3 years ago Member's comment

SureDividend, what's your take on Jay's comment?