Broadridge Financial Solutions: A Buy And Hold Market-Beater

"Invest in what you know." That’s the advice Peter Lynch gave investors. It’s easy to research companies you are familiar with. And if you regularly use a product, there’s a good chance millions of other people do as well.

Broadridge Financial Solutions, Inc. ($BR) is a company many investors know, even if they don’t recognize the firm by name.

Almost any time you receive investment materials like proxy statements or notifications about shareholder voting rights, you're using a Broadridge product. This company handles the boring-but-essential administrative side of finance and stock ownership.

Broadridge has been described as "one of the most important financial service companies in the world."

Here’s why…

Publicly traded U.S. companies are legally required to provide transparent and accurate information. This includes filing regular financial reports, disclosing important corporate events, holding shareholder meetings, and allowing shareholders to vote on key decisions.

Big businesses outsource many of these services to Broadridge.

For example, Broadridge Financial Solutions is the transfer agent and proxy administrator for Colgate-Palmolive.

Broadridge also handles investor relations services for The York Water Company.

Chevron Corporation is another Broadridge client.

So is McDonald's Corporation.

Doing paperwork for big corporations isn’t particularly exciting, but it provides Broadridge with a predictable and stable source of recurring income.

And the essential nature of this business has also allowed Broadridge to consistently outperform the market while rewarding shareholders with inflation-beating dividend growth.

Over the past decade, Broadridge Financial Solutions has delivered an average annual total return of 17.26%.

While this stock isn’t cheap, it is relatively inexpensive for a market-beater. Broadridge currently trades at a price to earnings ratio of 24.08 while offering a 1.71% starting yield that’s backed by a 5-year compound annual dividend growth rate of 10.49%.

With a low payout ratio of just 39.90%, Broadridge’s dividend is safe and has plenty of room for future growth.

Although the starting yield may not seem particularly high, it is higher the Vanguard S&P 500 ETF's current yield of 1.13%. Broadridge investors are also getting a faster dividend growth rate. And, historically speaking, Broadridge has delivered better long-term returns than the general market.

If the 10% annual dividend growth rate continues, and with the firm’s low payout ratio this should be no problem, then Broadridge shareholders will see their yield on cost double within 7 years.

Broadridge Financial Solutions, Inc. isn’t the cheapest stock or the highest yielding, but it is an interesting play on mandatory services that all publicly traded U.S. companies are legally required to provide. It’s also a company that’s consistently outperformed the S&P 500 while maintaining a conservative payout ratio. And, Broadridge has continually rewarded shareholders with inflation-beating dividend growth.

If you’re looking for a wide moat, buy-and-hold investment for long-term dividend growth, Broadridge Financial Solutions is definitely worth considering.

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Disclaimer: This article is for entertainment purposes only. It is not financial advice, always do your own research.