The company provides the proxy statements, annual reports, and other financial information you read about public companies and is a component of the S&P 500 itself.
You may not think of the backend operations of the stock market. Behind the trading floor glamorized by Hollywood and news outlets is the immobilization and dematerialization of paper securities created through legislation in the 1970s. This ensured everyone understood who had legal ownership of any given company.
These regulations created the shareholder processes we know.
In fact, Broadridge has a near monopoly in intermediary services. This could make it one of the most important companies of the stock market. For investors the question arises: Is Broadridge Financial Solutions stock a Buy?
Broadridge Financial Processed 350 Billion Shares
Shareholders have voting rights in the companies they own, even when it’s only a minority stake.
The consensus of the shareholders’ will determines how the stock is ultimately handled. It’s a democratic process in publicly traded companies, which is dictated and regulated by the Securities and Exchanges Commission (SEC).
Broadridge Financial Solutions was spun off from ADP in the wake of the 2007 financial crisis. The company had a near monopoly by processing 350 billion shares for companies under its client portfolio.
It since horizontally expanded through acquisitions of ClearStructure Financial Technology, FundsLibrary, and the North America Customer Communications (NACC). This only solidified its position – think of it as overseeing all the voting machines, but it’s for Wall Street instead of Washington D.C.
This makes it a valuable piece of both Wall Street and Washington’s financial infrastructure. But is it a worthwhile investment?
Is Broadridge Financial Solutions A Buy?
Broadridge Financial Solutions stock pays a quarterly cash dividend, which has consistently risen over the years, even during global lockdowns. Its $2.30 dividend in 2020 resulted in shareholders earning a 1.53 percent annual dividend yield.
Founded and headquartered in Lake Success, NY, it’s well-positioned for success in more ways than one.
Its fiscal year 2020 earnings report released in August showed total revenues of $4.5 billion in revenues, up 4 percent from $4.3 billion the previous fiscal year. This gave it adjusted earnings per share (EPS) of $5.03, versus $4.66 the previous year.
Much of this was driven by strong growth, high-profile initial public offerings (IPOs), and proxy communication shifts as the lockdowns stretched on.
Being at the foundation of the market makes it a strong financial play, but there are risks inherent to every investment.
Broadridge Financial Solutions Is Hard To Disrupt
Broadridge Financial Solutions has a lot of case studies on antirust actions by government regulators. Yet, it ironically has a virtual monopoly on its financial market segment. The barrier to entry involved in replacing financial infrastructure companies like Broadridge or Visa is a high cost.
Until 2020, it wasn’t clear if it could ever happen, but cryptocurrency’s blockchain technology and distributed ledger proved itself over a decade. And upstart FinTech projects like PayPal (PYPL) and Square (SQ) vastly outperformed their legacy rivals in the pandemic’s aftermath.
The company already faced accusations of monopolizing its position in the 2000s and early 2010s. Sidestepping those virtual landmines, it continued to expand through acquisitions. It even went international to shore up its holdings in Europe. This puts it at risk of E.U. regulatory ire.
A European Commission is already deep into finding ways to replace its reliance on American fintech. Visa (V) and Mastercard (MA) are first on the chopping block, and it’s likely only a matter of time before that push grows.
And none of that factors in the threat posed by blockchain startups.
Broadridge Competes Against Its Former Parent Firm
Broadridge’s legacy competitors include companies like its former parent ADP, FIS Global, Pershing, and Fiserv (FISV). Each of these companies is a multi-billion company with capital and positioning to bottleneck the company’s growth into other markets.
It’s now likely too big for any of them to buy, but they could leverage blockchain’s digital ledger technology to upend it in the stock market. Several securities-focused projects rose to give full digital trails of all trades, remain SEC compliant, and support shareholder voting rights.
And the cryptocurrency industry went on a rally in 2020, outperforming the stock market by year end. This decade could mark the changeover from legacy financial service to digital currencies. It won’t be the power change people initially thought though.
The U.S. dollar may exist for generations to come, but perhaps in the form of a digital dollar. The banking industry wasn’t replaced, but it was outperformed by FinTech and crypto competitors. Each can coexist, much like oil, natural gas, solar, and wind.
It’s not necessarily a winner-take-all scenario, but Broadridge needs to watch the target on its back. The barrier to entry may be funded by digital currencies.
Is Broadridge Financial Solutions Stock A Buy? The Bottom Line
Broadridge Financial Solutions is a financial technology company that acts as the third-party intermediary for a lot of companies’ financial information.
It grew in the days of paper stock tracking and spun off from its parent company in the digital age. Now it holds a virtual monopoly that competes in an elite market with a high-cost barrier to entry.
Its biggest competitor is coming in FinTech startups though. These companies outperformed traditional financial services in 2020. They created efficient digital solutions for all levels of financial transactions.
Beneath the glitz and glamor of digital currencies and coins is a blockchain technology that could disrupt the underlying financial technology you didn’t even realize existed.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.