Updated on April 22nd, 2022 by Quinn Mohammed
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 only 50 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 1.6% 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.
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 $81 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 over the past three years prior to 2021. 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, Inc. released its second quarter results on February 17th, 2022. Q2 operating revenues increased approximately 40% year-over-year. Net income came in at $3.6 million, compared to $16.7 million in the same prior year period. Total AUM grew to $3.8 billion on December 31st, 2021, compared to $3.5 billion one year ago.
The company also reported net working capital of approximately $29.9 million, with cash and cash equivalents of $23.2 million and $8.2 million in securities at fair value which added to the company’s adequate liquidity to meet its current obligations.
Additionally, for the six months ended December 31st, 2021, GROW repurchased 24,104 class A shares at the cost of $136,000 in cash. The company strategically repurchases its stock on down days according to an algorithm. And, on February 25th, 2022, the company increased its annual share buyback limit from $2.75 million to $5 million.
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, including its investment in HIVE Blockchain Technologies (HVBT).
HIVE is a cryptocurrency miner, meaning it has supercomputers that mine Bitcoin, Ethereum, and others. U.S. Global Investors is invested in HIVE through warrants and convertible debentures. As of the end of the 2022 second quarter, the investments were valued at approximately $22.3 million.
This investment will help bolster results, but investors should keep in mind that a large investment in a company that mines cryptocurrencies is far from a safe long-term strategy.
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, the current share repurchase program 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.
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 1.6%. 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 shy to cut the dividend. GROW has cut its dividend in four of the last ten years. 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.
The company’s cash and equivalents balance has declined over time for the most part, but U.S. Global Investors had significant cash and equivalents of $23.2 million as of its latest report. 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 safe at this point.
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.
The investment in HIVE and its massive precious metals and natural resources exposure are potential growth catalysts with immense upside potential but are also risky. Given this, and the fact that the dividend yield is so low, 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.
If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:
- The 20 Highest Yielding Dividend Aristocrats
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of 40 stocks with 50+ years of consecutive dividend increases.
- The 20 Highest Yielding Dividend Kings
- The Dividend Achievers List: a group of stocks with 10+ years of consecutive dividend increases.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500.
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Monthly Dividend Stocks List: contains stocks that pay dividends each month, for 12 payments per year.
- The 20 Highest Yielding Monthly Dividend Stocks
- The High Dividend Stocks List: high dividend stocks are suited for investors that need income now (as opposed to growth later) by listing stocks with 5%+ dividend yields.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: