Interactive Brokers raises its dividend 71% as accounts grow and trading cools

Interactive Brokers Group Inc. raised its quarterly dividend by about 71% on Thursday after a third quarter in which customer accounts kept climbing and interest income lifted revenue, even as clients traded less than they did in the spring.

A bigger payout

The board raised the quarterly cash dividend to $0.15 a share from $0.0875, an increase of about 71%. It is payable on Dec. 14 to shareholders of record on Dec. 1. At the new rate, a full year of payments would come to $0.60 a share.

The company did not explain the size of the increase in its release. It ended September with total equity of $23.3 billion, up from $22.3 billion three months earlier.

Interest led the revenue increase

Net revenues rose 16% from a year earlier to $1.91 billion, and diluted earnings were $0.69 a share, up from $0.59. Stripping out currency and investment swings, adjusted earnings were $0.67 a share on adjusted net revenues of $1.87 billion. Analysts had expected about $0.67 a share and $1.86 billion in revenue, according to consensus figures compiled by Yahoo Finance and MarketBeat.

Net interest income did most of the work. It climbed 19% to $1.15 billion, driven by larger customer margin loans and cash balances. Margin loans, money customers borrow against their holdings to buy more, were $105.2 billion at the end of September, up 36% from a year earlier. Customer cash balances rose 20% to $186.2 billion.

Commission revenue grew 12% to $602 million. Average daily trades rose 18% from a year earlier, and part of the gain came from higher regulatory fees that the company passes through to customers. Customer volume rose 13% in futures, fell 24% in stocks, and slipped 1% in options.

The company kept 78% of its net revenues as pretax profit, compared with 79% a year earlier.

A cooler quarter than the spring

Compared with the second quarter, the picture was more mixed. Customers placed 4.27 million revenue-generating trades a day on average, down 11% from 4.82 million in the April-to-June period. Commission revenue fell to $602 million from $673 million, and margin loans slipped to $105.2 billion from $108.5 billion at the end of June.

Account growth slowed only slightly from the spring, to 8% from 9%. Interactive Brokers ended September with 5.58 million customer accounts, up 35% from a year earlier and up from 5.19 million at the end of June. Customer equity, the value of assets held in those accounts, reached $964.7 billion, compared with $930.3 billion three months earlier.

Net interest margin, a measure of how much the company earns on its interest-bearing assets, narrowed to 1.99% from 2.16% a year earlier, while the yields it earned on segregated customer cash and on margin loans fell.

Who owns the earnings

Most of the profit does not belong to public shareholders. Interactive Brokers Group Inc., the listed company, owns 26.6% of the operating business, IBG LLC, and the rest is held by IBG Holdings LLC. Of $1.35 billion in third-quarter net income, $314 million was available to common stockholders.

How the stock traded

Shares closed at $86.03 on Thursday, up 2.2% from Wednesday's close of $84.14, before the results came out. In after-hours trading they were at $84.92 at 4:26 p.m. ET, down 1.3% from the close, according to Yahoo Finance and CNBC market data. The company's release does not comment on the share price. Executives scheduled a call with investors for 4:30 p.m. ET Thursday.