While we have seen significant return on investment for US global investors in some quarters, we believe the long-term business model is problematic. Therefore, we do not find the company’s long-term growth prospects particularly attractive.
But this isn’t a new phenomenon, and the company has struggled with profitability for years. The company makes its own investments that generate sizable gains and losses in any given quarter.
GROW is currently experiencing successful top-line growth, and this trend is expected to continue as its network and brand strength gradually improve. In its current portfolio, the company bets heavily on precious metals, cryptocurrencies and airline funds.
In addition, share buybacks can benefit the company and drive earnings per share growth. Book value per share, he expects to grow at a low single-digit annual rate over the medium term.
Dividend analysis
US Global Investors has paid dividends every month for more than 14 years in a row, which is a decent track record. At the current payout of $0.09 per share per year, the stock yields 3.1%. US Global Investors, which has tripled its dividend since the pandemic hit, is unattractive on a yield basis.
One equally important factor to note is that the company isn’t afraid to cut its dividend. GROW has cut its dividend several times over the past decade. In fact, his annual dividend per share in 2012 was $0.24, which is significantly higher than his $0.09 per share today.
The problem is that with the bleak earnings growth prospects, we believe dividend growth is also pretty hard to come by. On the plus side, we believe the clean balance sheet will allow us to continue paying dividends for some time should we choose to fund it with cash on hand rather than earnings.
In fact, the company has enough cash and short-term bonds on its balance sheet to theoretically pay dividends after years of no earnings. Therefore, we believe that the payment is likely safe at this point.
final thoughts
The outlook for US Global Investors is bleak. The firm must compete with other asset managers many times its size in an industry where size means pricing power. The company has no scale, no pricing power, and operating costs are rising.
Investors should always be aware of the inherent liquidity risk and other factors when purchasing micro-cap stocks with a market capitalization of less than $100 million.
Its massive exposure to precious metals and natural resources, along with other speculative bets, is a potential growth catalyst with huge upside potential, but it also carries risks. Given this and the fact that it has a very poor dividend track record, we think income investors should avoid this stock. However, as the name suggests, for investors interested in growth, this can be an opportunity to invest in speculative plays such as precious metals, cryptocurrencies and airline funds.
If you’re looking to find more quality dividend growth stocks for your long-term investment, the Sure Dividend database is here to help.
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