Updated on February 27th, 2023 by Samuel Smith
Exchange-traded fund and mutual fund providers have consolidated in a big way in recent years. The number of these independent companies has dwindled via mergers, and the ones that are left are generally not thought of as income stocks.
U.S. Global Investors, Inc. (GROW) pays a dividend, but it is only just a bit higher than that of the S&P 500 average yield. On the plus side, the company pays its dividends monthly, instead of quarterly or semi-annually. This allows for more frequent payments for those investors that purchase stocks primarily for income.
U.S. Global Investors is one of 84 monthly dividend stocks. You can download our full list of monthly dividend stocks (along with price-to-earnings ratios, dividend yields, and payout ratios) by clicking on the link below:
U.S. Global Investors’ yield of 3.1% is not particularly attractive from an income perspective, even if it is paid monthly. In addition, we see future growth as highly speculative. And while the dividend is likely safe for now, deteriorating earnings could result in a payout cut or suspension in the future.
This article will analyze the investment prospects of U.S. Global Investors in greater detail.
Business Overview
U.S. Global Investors began more than 50 years ago as an investment club. Today, it is a publicly-traded registered investment advisor that looks to provide investing opportunities in niche markets around the world. The company provides sector-specific exchange-traded funds and mutual funds, as well as an interest in the cryptocurrencies space. U.S. Global Investors produced $22 million in annual revenue in 2021 and has a market capitalization of just $43 million.
The company has a number of niche products in its portfolio of offerings, with the breakdown at roughly two-thirds in gold and natural resources, and the balance in emerging markets, US equity and fixed income products.
Indeed, assets under management have been somewhat volatile, but have moved decidedly in the wrong direction in recent years. U.S. Global Investors is not unique among asset managers in seeing volatile AUM, but its very small scale and overall negative trend in AUM is concerning from our perspective.
U.S. Global Investors announced an operating income of $1.6 million for the first quarter of fiscal 2023. The company’s operating margin was a healthy 36%, with total revenues of $4.4 million and a net income of $118,000, or $0.01 per share. However, the average assets under management for the three-month period ending on September 30, 2022, decreased to $2.9 billion, which is about $1 billion lower than the same quarter the previous year. As of September 30, 2022, the assets under management stood at $2.3 billion, reflecting a 46% decrease from the same period in 2021.
Growth Prospects
While certain quarters will show large investment gains for U.S. Global Investors, we see the long-term business model as challenged. We therefore do not believe the long-term growth prospects of this company are particularly enticing.
This isn’t a new phenomenon, however, as the company has struggled for years with profitability. The company has investments of its own that produce fairly sizable gains and losses in any particular quarter.
Currently, GROW is having success in growing the topline, and we expect this will continue among incremental improvements in its network and brand power. With the current portfolio, the company is making large bets on precious metals, crypto, and airline funds.
Additionally, share repurchases could benefit the company and drive earnings-per-share growth. We estimate book value per share will grow at a low single-digits annualized rate in the medium term.
Dividend Analysis
U.S. Global Investors has paid its dividend on a monthly basis for more than 14 consecutive years, which is a decent track record. At the current payout of $0.09 per share annually, the stock yields 3.1%. On a yield basis, U.S. Global Investors is far from attractive, although the company has tripled its dividend since the onset of the pandemic.
One important factor to note as well is that the company is not afraid to cut its dividend. GROW has cut its dividend several times over the past decade. In fact, the annual dividend per share was $0.24 in 2012, which is significantly higher than the current $0.09 per share.
The problem is that with a murky outlook for earnings growth, we believe dividend growth will also be fairly difficult to come by. On the plus side, with a clean balance sheet, we believe it can continue to pay the dividend for some time if it were to choose to fund it with cash on hand rather than earnings.
In fact, the company has enough cash and short-term bonds on the balance sheet that it could theoretically pay the dividend for years without earnings. Thus, we believe the payout is likely safe at this point.
Final Thoughts
U.S. Global Investors has a tough road ahead of it. The company has to compete with other asset managers that are many times its size in an industry where scale means pricing power. This company has no scale or pricing power and is seeing rising operating costs.
Investors should always be mindful of unique liquidity risks and other factors when buying micro-cap stocks that have market caps below $100 million.
Its massive precious metals and natural resources exposure along with some other more speculative bets are potential growth catalysts with immense upside potential but are also risky. Given this, and the fact that the dividend track record is so poor, we think income investors should avoid this stock. However, for investors interested in growth, as the name implies, this could be an opportunity to invest in speculative plays such as precious metals, crypto, and airline funds.
Don’t miss the resources below for more monthly dividend stock investing research.
- The Monthly Dividend Stocks List
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