The best choices aren’t always the most obvious. In my view, the FTSE 100 income stock I’m going to talk about today is one of the best big-cap dividend shares you can buy right now. However, relatively few big institutions own the shares.
One exception is top fund manager Nick Train, who runs the Lindsell Train UK Equity Fund. Train’s funds own around 10% of this business. Indeed, Lindsell Train is the company’s second-largest shareholder, after its founding family, who control around 45% of the voting stock.
Who is it?
The company in question is asset management group Schroders (LSE: SDR). This City stalwart was founded more than 200 years ago and has become known for taking a long-term and responsible approach to investment. This isn’t a business that chases quarterly earnings and short-term gains.
This approach has worked very well for long-term holders of this FTSE 100 income stock. Schroders’ dividend has not been cut for at least 30 years, which was as far back as I could research. That unbroken record includes the 2008 financial crisis and this year’s market crash.
If you’re interested, Schroders’ share price has risen by nearly 120% since 2000.
What’s so good about this business?
It’s surprisingly rare to find businesses that can deliver consistent profitability and dividends over several decades. Schroders has achieved this trick. Looking back over the last five years, the group’s operating profit margin has averaged 26% and returns on equity have averaged nearly 16%. Those are impressive figures, in my view.
As an asset manager, Schroders makes money from fees rather than interest rates. In today’s world of ultra-low interest rates, I think this makes the firm a much better choice than the big FTSE 100 banks for income investors.
Looking ahead, the company is continuing to focus on its core investment management business while looking for related new opportunities. One recent example is a wealth management joint venture with Lloyds Banking Group, named Schroders Personal Wealth.
It’s too soon to say how successful this venture will be, but I think it should help Schroders to win new business without requiring significant investment.
How to buy this FTSE 100 income stock
There’s one thing I think you need to know before you buy this share. Unusually, Schroders has two classes of stock. The main FTSE 100 stock has the ticker code SDR. This carries voting rights but has a higher share price than the Schroders (LSE: SDRC) shares, which don’t have voting rights.
Holders of both classes of share receive the same dividend. At the time of writing, this means that the SDR stock offers a yield of 4.1%, while the SDRC shares yield around 5.9%.
In my view, voting rights are irrelevant here. As a small private shareholder, you’ll never have any influence, given the size of the family’s shareholding. I’d always buy the SDRC shares to benefit from the extra yield.
I think Schroders looks good value at current levels, so I’d rate the shares as a long-term buy.
