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Investors who include some form of social criterion in their investment decisions often face additional challenges in finding suitable investment candidates as most screens only focus on quantitative elements of a candidate. In this article, I highlight financial services stocks that have a dividend growth history and that were constituents of Pax MSCI North America ESG Index ETF (NASI).

Pax MSCI North America ESG Index ETF

NASI was an ETF maintained by ESGShares devoted to sustainable investing. Pax World Management LLC was the investment advisor for NASI. Although NASI closed and liquidated on March 13, 2013, due to low asset under management growth, that does not prevent us from using it as a starting point to find investment candidates that meet environmental, social, and governance responsibility criteria.

ESGShares defines sustainable investing as:

Sustainable Investing is the full integration of environmental, social and governance (ESG) factors into investment analysis and decision making. It seeks to deliver superior long-term investment performance by integrating traditional financial analysis with rigorous ESG analysis.

In addition, it believes that incorporating such criteria into investment decisions can lead to sound, long-term benefits as

  • Companies with stronger environmental performance often carry less risk, achieve greater efficiencies and are better positioned to take advantage of opportunities in a global marketplace where environmental issues increasingly matter.
  • Companies with strong employee relations and workplace practices often enjoy higher productivity, higher morale, lower turnover and absenteeism, and are therefore better positioned for growth than their less enlightened competitors.
  • Companies with better corporate governance practices may be less likely to have "blow-ups" or other surprises, financial or otherwise.

Additional Dividend Growth Criteria

In addition to asking that investment candidates be part of NASI, I utilized the additional criteria below:

  1. Five-year compound average dividend growth rate > 6%
  2. Earnings Per Share Payout Ratio < 50%
  3. Debt / Equity < 1.0

These criteria yielded the following investment candidates in the financial services sector: Ameriprise Financial Inc (AMP), Eaton Vance Corp (EV), Franklin Resources Inc (BEN), and T. Rowe Price Group Inc (TROW).

Below is some basic information about each to help investors determine if they are worth further due-diligence.

Ameriprise Financial Inc

Ameriprise Financial Inc was spun off from American Express in 2005. It began as a life insurance company but has shifted towards emphasizing asset management. It has about a 50/50 balance between life insurance and asset management. In 2008, it acquired H&R Block and J&W Seligman. In 2010, it acquired Columbia Management. AMP has raised its dividend every year since its spin-off in 2005.

The market capitalization is $15.1 billion. The dividend yield is 2.4%, and the dividend payment has grown at a compound average growth rate of 20.6 over the last five years. The TTM payout ratio is 30.9%. The TTM Price / Earnings ratio is 16.2, the Price / Sales ratio is 1.6, and the Price / Book ratio is 1.7. Debt / Equity in the latest quarter is .81. Analysts are projecting around 14.7% earnings per share growth over the next three to five years. Below is a chart from YCharts showing the dividend per share, earnings per share, and the payout ratio over the past 10 years.

AMP Dividend Chart

AMP Dividend data by YCharts

Eaton Vance Corp

Eaton Vance is a key player in the asset management industry. It provides equity and fixed-income investment products to tax-sensitive investors. It also issues and manages a number of closed-end funds. EV has raised its dividend every year for the last 32 years.

The market capitalization is $4.9 billion. The dividend yield is 1.96%, and the dividend payment has grown at a compound average growth rate of 8.9 over the last five years. The TTM payout ratio is 44.0%. The TTM Price / Earnings ratio is 23.1, the Price / Sales ratio is 3.9, and the Price / Book ratio is 8.6. Debt / Equity in the latest quarter is .71. Analysts are projecting around 13.1% earnings per share growth over the next three to five years. Below is a chart from YCharts showing the dividend per share, earnings per share, and the payout ratio over the past 10 years.

EV Dividend Chart

EV Dividend data by YCharts

Franklin Resources Inc

Franklin Resources is a large global asset manager. One-third of its managed assets come from outside of the United States. BEN has raised its dividend every year for the last 32 years.

The market capitalization is $31.5 billion. The dividend yield is .78%, and the dividend payment has grown at a compound average growth rate of 12.9 over the last five years. The TTM payout ratio is 11.9%. The TTM Price / Earnings ratio is 16.2, the Price / Sales ratio is 4.4, and the Price / Book ratio is 3.5. Debt / Equity in the latest quarter is .28. Analysts are projecting around 13.85% earnings per share growth over the next three to five years. Below is a chart from YCharts showing the dividend per share, earnings per share, and the payout ratio over the past 10 years.

BEN Dividend Chart

BEN Dividend data by YCharts

T. Rowe Price Group Inc

T. Rowe Price Group is a well-known asset manager. About three quarters of its assets under management are focused on equity and balanced strategies. It also gets a lot of its assets under management through retirement accounts and variable-annuities. TROW has raised its dividend every year for the last 26 years.

The market capitalization is $19.1 billion. The dividend yield is 2.03%, and the dividend payment has grown at a compound average growth rate of 14.9 over the last five years. The TTM payout ratio is 40.5%. The TTM Price / Earnings ratio is 22.3, the Price / Sales ratio is 6.5, and the Price / Book ratio is 5.0. Debt / Equity in the latest quarter is 0. Analysts are projecting around 14.33% earnings per share growth over the next three to five years. Below is a chart from YCharts showing the dividend per share, earnings per share, and the payout ratio over the past 10 years.

TROW Dividend Chart

TROW Dividend data by YCharts

Source: 4 Financial Services Stocks For Socially Responsible Dividend-Growth Investors

Additional disclosure: Data for this article was sourced from a number of places. The dividend growth rates for each stock are from the U.S. Dividend Champions spreadsheet available at dripinvesting.org/Tools/Tools.asp. The analyst projections are from Fidelity. All other data is from Morningstar.