Magellan Financial Group (ASX: MFG) has seen its fair share of pressure on the share price. I think there are at least two reasons to keep holding Magellan.
About Magellan
Magellanis a funds management business that largely invests in international shares like Facebook and Visa. It was set up in 2006 by Hamish Douglass and Chris Mackay. Since inception, Magellan claims it has been one of the most consistent market outperformers after fees.
Reason 1: It will remain profitable
The fundamentals of funds management are quite attractive. They earn their base management fee whether their portfolio goes up or down. Profit will be reduced as Magellan’s portfolios fall in value, but it will still remain highly profitable.
Many of the businesses that Magellan is invested in on behalf of its shareholders are sturdy and will be among the best candidates to get through this period and thrive on the other side. That should mean smaller declines for Magellan’s portfolios and funds under management (FUM).
Reason 2: The dividend will remain attractive
Magellan pays out most of its profit out each year as a dividend to shareholders. If profit falls then the dividend is likely to be reduced too. However, even if the dividend were cut back to 2018 levels it would still amount to a yield of 4.5% at the current share price. That yield would be solid compared to current bank interest rates.
However, the US infection rate is really ramping up at the moment. It may be wise to wait a couple of weeks before committing to buying shares in-case the market drops again.
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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.
