Waddell And Reed: Is The Dividend A Trap?

I don’t think anyone questions that the asset management industry is under pressure. Perhaps the degree of pressure can be debated, as well as whether current stock prices are an accurate reflection of future impact, but at the end of the day, this is an industry that is going to see significant change. The shift to passive investment styles is going to be one that shifts the landscape, and while active may see revitalization in regards to interest, the glory days are most likely gone. Like with any industry undergoing change, there are going to be winners and losers, and Waddell and Reed (WDR) has been increasingly looking like a loser in this horserace.
Since late in 2014, the company has lost nearly two-thirds in value, which contrasts rather starkly to industry stalwarts like BlackRock (BLK), or even slightly beaten down competitors like Legg Mason (LM). The asset management business is simple: You either outperform benchmarks or you don’t. At the end of the day, sales are always going to follow performance: Good relative performance is going to stimulate sales, keep redemptions low, grow assets under management, and justify higher fee schedules. Still, investors are likely quite tempted by the 9.75% dividend yield; why not get paid to wait out a potential turnaround? As alluring as it is, this appears to be the wrong decision in my opinion.
Business Overview
At its heart, this is a sales business. Waddell and Reed pitches its portfolio of products (nearly... Read more

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