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.
Source: Investor Presentation
Dividend Analysis
U.S. Global Investors has paid its dividend on a monthly basis for more than 15 consecutive years, which is a decent track record. At the current payout of $0.09 per share annually, the stock yields 3.5%. 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.
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