Financial services company State Street Corporation (STT)
faced severe consequences during the financial crisis at the end of 2008 and early 2009, but it seems to have put those days behind it. The recent resumption of a meaningful dividend is an indication that management is more confident about the future.
State Street provides asset management services to institutional customers. Business is divided into two segments: Investment Services and Investment Management. Investment Services is primarily custody services for other asset managers. Investment Management manages portfolios for clients.
Among other products, State Street manages the popular SPDR ETF portfolios. The company has approximately $23 trillion of assets under custody and $2.1 trillion under management.
Over the four year period from 2005 through 2008, State Street doubled earnings per share to $5.61from $2.82. The company was shaken by the financial crisis. Earnings dropped to $3.32 per share in 2009 and 2010 was not much better, with net income of $3.40.
For 2011, the consensus estimate is earnings of $3.64, with actual earnings of $1.82 posted for the first half of the year. Note: These are earnings per share from continuing operations as reported by State Street.
In February 2009 the State Street board cut the quarterly dividend to a penny from 24 cents. The move was to build capital in the face of very large unrealized losses on its investment portfolio. Not until March 2011 was the dividend rate was increased, to 18 cents, showing the board's belief that the company could again pay out a reasonable amount of profits to shareholders.
State Street management projects revenue and net income growth rates of 10 percent to 12 percent for the next several years, well below the go-go growth of 2004 through 2008. There are many companies in the financial sector with very uncertain pictures of their future results. The nature of State Street's business, however, makes the projected growth a bit more certain.
About three-quarters of the 17 Wall Street analysts following STT have a buy or outperform rating on the stock. The remaining analysts are neutral on State Street. The company reports next on Oct. 18.
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