Invesco: A Fine Stock for Total-Return Investors
Bad markets beget good bargains. This leader in its field pays a generous dividend and offers enticing and well-defined upside potential.
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Asset management firm Invesco Ltd. IVZ is best known for its flagship QQQ ETF QQQ, which attempts to replicate the performance of the Nasdaq 100.
Assets under management total about $1.6 trillion, including about 30% held for clients outside the U.S.
Adjusted earnings vary with market action as IVZ charges a set percentage of assets held. Boom years for equities tend to see better results, Bear market periods will typically show lesser results.
Excluding non-cash charges, IVZ remained quite profitable even during the Covid crisis period.
I recommended IVZ on April 23, 2020 at a price of $7.35. Its subsequent peak of $29.70 came just 15 months later at $29.70. Those who followed my advice in April 2020 could have quadrupled their money, plus any dividends received.
Shares that fetched $18.28 a few months ago closed at $15.34 on April 11, 2024. Bad markets beget good bargains.
What Is IVZ Worth?
A normalized multiple has run about 13.4 times, historically accompanied by around 3.91% in yield. As of last Friday IVZ was offered at 10.2 times Value Line’s lower-than-other-researchers’ 2024 EPS estimate while paying a hefty 5.22%.
IVZ’s forward P/E multiple will be just 8.9x if the higher estimates for this year prove accurate.
Assign a normalized multiple to Value Line’s estimate and just over $20 seems like a reasonable goal price looking out to January 2025. That number is validated by reverse engineering the company’s current 80-cent annual dividend rate to a normalized 3.91%. Based on that method $20.46 is the calculated present value.
Note, too, that IVZ raised its quarterly payment amount during Q2 of the past three years. That suggests a dividend increase may be coming again soon.
My goal prices are far from an upper limit. IVZ changed hands above $30 and even $40 in past years and could possibly do that again.
Yahoo Finance calls for a total return of about 22.1% over the coming year. I find that to be ultra-conservative as it assumes Invesco will only fetch 10.4x Yahoo’s 2024 EPS estimate.
Research firm FAST Graphs notes that IVZ topped between $19 and $42 during each of the latest 10 full calendar years.
Applying my calculated average P/E to its $1.73 per share estimate for 2024 generates a 10-month target price for IVZ of $23.18.
Schwab’s research (not shown here) also sees Invesco’s 2024 EPS coming in at $1.73. That supports at least a $22-$23, 12-month target price as well.
Even the worst of the goals would deliver what most people would be dying to get. Solid total returns with a nice income component that is equal to, or better, than the yield on the best one-year bank CDs.
Option savvy traders could do even better, and with reduced risk, to consider setting up January 17, 2025 expiration date $17 strike price buy/write combinations.
That technique involves buying round lots of stock while also shorting an equal amount of covered calls and naked puts on the same underlying shares.
Actual pricing on those options, with IVZ at $15.34, are shown below.
Here is a graphic showing the cash flow details on a 1,000-share, 10-call and 10-put combination.
If held to maturity in a margin account with plenty of free buying power there are just two basic ways this combination can play out.
IVZ will either close at $17, or above, or below $17.
If the former scenario plays out, requiring a minimum upturn of at least 10.8%, the best-case number detailed below will unfold.
The cash-on-cash annualized return would be 66.16%.
What if IVZ fails to reach and hold $17 on expiration day?
If so, the worst-case scenario detailed below would come to pass. Barring a major decline, though, even that would not be a scary outcome. Any drop of less than $1.29 per share, minus 8.4% from the trade inception price., would still allow for an immediate liquidation for at least a small profit.
A larger decline would simply leave the seller of this buy/write combination with 2,000 shares of IVZ at an average all-in cost of $14.05 per share.
That break-even point is lower than IVZ’s absolute lows during 10 of the last 13 years, including 2024 YTD.
There you have it. Invesco is a leader in its field, pays a generous dividend and offers enticing and well-defined upside potential. Its low absolute price, bargain valuation and high implied volatility make it a great choice for collecting juicy option premiums.
Buy some shares, sell some naked puts, or consider setting up full buy/write combinations.
At the time of publication, Price was long IVZ shares and short IVZ options.
