Marsh & McLennan Companies, Inc. (NYSE:MMC) has rewarded its shareholders with a full decade of relatively volatility-free capital gains and its recent acquisition aims to strengthen the firm’s position as the sector leader, which could potentially extend the long-term asset appreciation into the near future.
Marsh & McLennan experienced strong capital growth in the late 1990s. However, that streak ended abruptly in late 2000 as the dot-com bubble burst. The share price downtrend sustained for several years right into the 2008 financial crisis. By February 2009, the company’s share price had lost nearly three quarters of its dot-com peak value in late 2000. The early-2009 price level below $18 was the share price’s low point in the past two decades.
However, since reversing direction in 2009 and embarking on its current long-term uptrend, the company’s share price advanced more than 425% with only two significant pullbacks of more than 10% — one in 2015 and the other in late 2018. However, the share price recovered from both those pullbacks within 30 days and continued delivering steady capital gains afterwards. Neither company’s fundamentals nor the overall market conditions indicate that — barring any unforeseen circumstances or a “black swan” event — Marsh & McLennan might end its rising share price trend in the near future.
Marsh & McLennan Companies reported its most recent financial results on January 30, 2019, for the fourth-quarter and full-year 2018. Fourth-quarter 2018 consolidated revenue increased 1% year-over-year to $3.7 billion. Excluding the impact of the new ASC 606 revenue standard, the revenue increase was 4%. While the operating income declined 7% to $621 million, the adjusted operating income of $731 million. was 7% higher than in the same period last year. Additionally, the adjusted earnings per share (EPS) rose 4% from $1.05 in the last quarter of 2017 to the current $1.09 EPS. Furthermore, the current EPS of $1.09 beat analysts’ expectations of $1.04 by nearly 5%.
Full-year revenue for 2018 advanced 7% to $15 billion. Earnings advanced 13% to $3.23 per diluted share. Adjusted EPS increased 11% over $3.92 for full-year 2017 to $4.35 for 2018. To enhance its share price, Marsh & McLennan repurchased 11.5 million of its common shares for a total of $900 million. The company spent a full third of that amount — $300 million — to repurchase 3.6 million shares just in the last quarter of the year. In addition to the share repurchase the company distributed nearly $1.5 billion as dividends, bringing the total funds returned to shareholders in 2018 to nearly $2.5 billion.
Headquartered in New York, New York, and founded in 1871, Marsh & McLennan Companies, Inc., is a professional services company that provides advice and solutions to clients in the areas of risk and business strategy. The company’s Risk & Insurance Services segment offers risk management services, such as risk advice and transfer, as well as risk control and mitigation solutions. Additionally, this segment also offers insurance, reinsurance broking, catastrophe and financial modeling, as well as related advisory and insurance program management services. The Consulting segment provides health, wealth and career services and products. In addition to these services and products, the Consulting segment provides specialized management, as well as economic and brand consulting services. On April 1, 2019, Marsh & McLennan Companies completed a $5.6 billion acquisition of Jardine Lloyd Thompson Group plc (JLT). Marsh & McLennan Companies already advises 95% of the Fortune 1000® companies and offers its services in 130 countries. JLT will complement Marsh & McLennan existing service offerings, increase employee headcount by nearly 15% and provide deeper industry expertise across the Marsh & McLennan organization.
Marsh & McLennan delivered on its commitment to enhance its dividend by double-digit percentages and boosted its dividend distribution 10.5% in 2018. The company’s current $0.415 quarterly dividend payout amount corresponds to a $1.66 annualized distribution amount and a 1.76% dividend yield. Dividends rose at a slower pace than the company’s share price. Therefore, the current yield is 5.1% lower than the company’s own 1.85% five-year average yield. While also lower than the 3.09% average yield of the entire Financials segment, Marsh & McLennan’s current 1.76% yield is the third-highest in the Insurance Brokers industry segment and 137% higher than the segments 0.74% simple average yield.
The company has been paying dividends for the past 95 years and has boosted its annual dividend amount over the past decade. Since 2009, the company more than doubled its annual dividend amount, which corresponds to an average annual growth rate of 7.6%.
The company’s share price continued its long-term uptrend during the first half of the current 12-month period with minimal volatility. However, the share price experienced a dip in October 2018 but recovered fully by the first week of November. Unfortunately, the overall market correction in December pushed the share price into a 15% correction and the price reached its 52-week low of $75.52 on December 24, 2019.
However, the share price regained those losses by the end of January 2019 and continued rising towards its 52-week high of $94.81 on April 1, 2019. After peaking at the beginning of April, the share price retreated $0.26 and closed on April 4, 2019, at $94.55. This closing price was 11.2% higher than one year earlier, more than 25% above the Christmas Eve low and twice its price level from five years ago.
The asset appreciation and dividend income distributions combined to reward shareholders with a 13.1% total return over the past 12 months. The total return over the past three years exceeded 60%. Lastly, the shareholders more than doubled their investment over the past five years with a total return of 116%.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.
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