Charles Schwab (SCHW): 'Keep chugging along'

"As a discount broker, Charles Schwab Corp. (NASDAQ: SCHW) makes money on every transaction it does for its clients," says Horatio Marquez.

"The contributing editor to the industry-leading Money Map Reporter explains, "For Schwab, it doesn’t matter whether the market goes up or down. It’s just matters that the market keeps on chugging along."

"Investing in Schwab is like betting with the casino, and not the gambler. And those kinds of odds I’ll take any day. Fact is, all that matters is that stock and options traders keep 'plying their trade.'

"And well they have. Increased trading activity helped Schwab post better results for the last quarter. And that trading surge has continued into July, with average daily trades to date already 7.9% higher than in June.

"Moreover, the growth in the individual investing sector is huge. You see, companies are increasingly putting the responsibility for retirement planning back on their employees.

"So as baby boomers retire en masse and increasingly get more involved in the management of their own investment accounts, they have to find someplace to turn for sound investment advice.

"Their market share has grown by leaps and bounds – today Schwab is the largest discount broker in the United States – and is the No. 1 provider of online trading services. That dominance should continue well into the future.

"Of course, the big players in this field are combination brokerage houses and investment banks. Most of them still have lots of exposure to the credit crisis. Not Schwab. The arm of the company that actually does banking is oriented to deposit taking. Its charge-offs for bad loans are almost non-existent.

"Most often, when volatility in the markets goes up, so does trading volume. This record-sized volatility right now is driving almost record-setting levels of trading in options and derivatives in particular. One reason the company is so strong is that its business is well-diversified.

"In addition to its trading dominance, Schwab was also a pioneer in the area of no-transaction-fee mutual funds, making the company one of the three largest U.S. managers of mutual funds, alongside Fidelity and Vanguard.

"And while the second-quarter results were lauded, it’s the company’s underlying performance that really deserves attention. Schwab’s exceptional second-quarter report demonstrates that the company remains successful at attracting new accounts and assets. This is a key factor.

"During the three months that ended June 30, Schwab added 226,000 new client accounts and $26 billion in new assets, boosting its total client assets to $1.4 trillion. This is almost a perfect storm in which the market is actually driving stock and option trading.

"And here’s what makes the outlook even better: The company just announced that it’s increasing its quarterly dividend by 6 cents a share – an astounding jump of 20%.

"No doubt, a dividend increase of this size indicates the company’s bullish outlook for the future. Increases are hardly ever made unless management is certain the new payout can be maintained. And 20% is a substantial increase.

"And then there’s the 32% return on equity for Schwab. It’s likely one of the most enviable ROEs in the business. The firm weathered the market storm fantastically, and now its diversification into asset management and advisory services is paying off.

"With its industry-leading reputation and brand, Schwab is well positioned to keep raking in profits from traders. Look for strong earnings growth to propel the stock price to new levels."