Investors who may not have a high net worth, but want to profit from those who do, should cast an eye at Gluskin Sheff + Associates Inc., which continues to throw dollars at shareholders through higher dividends.
The Toronto-based wealth management boutique, which requires clients to invest a minimum of $3-million, is considered a potential takeover target – a factor that has helped drive up its stock over the past year.
The stock surged by as much as 8 per cent in trading on Wednesday after the company hiked its dividend by 14 per cent, topped it off with a special dividend and said its assets under management grew 13 per cent year-over-year in the second quarter, despite volatility in global markets.
The company, founded in 1984 by Ira Gluskin and Gerald Sheff, now yields 3.7 per cent in regular dividends. On top of that, it added its ninth special dividend of $1.40 per share, citing confidence in the business despite challenging times in the financial services industry.
CEO Jeremy Freedman said the company had built up a “tremendous amount of cash,” and asserted that the greater-than-expected payouts won’t limit the company’s activities.
“We still have good levels of cash. We are still going to run it with a conservative balance sheet. We’ve gone 29 years without borrowing a nickel and we are still in that strong position today,” Mr. Freedman said during a conference call.
Gluskin Sheff said second-quarter profit grew to $11.1-million, or 38 cents per share, up from $2.3-million, or eight cents, a year earlier. Assets under management increased by $60-million to $6.2-billion.
There’s potential for further asset growth once nervous investors get back into the market, Mr. Freedman said.
“Our clients are still sitting on a tremendous amount of cash that they aren’t yet prepared to put into the market.”
The company added that it was bumping up bonuses for employee performance. Analysts say the move was necessary to reduce the risk that the firm’s top money managers will defect to competitors or set up their own shops.
“To the extent that [risk] is now mitigated through higher compensation, that’s a good thing,” CIBC World Markets analyst Paul Holden said.
Gluskin Sheff stock closed up 3 per cent to $21.70 on the Toronto Stock Exchange on Wednesday, just shy of its 52-week high from July. The stock is up 62 per cent from its 52-week low reached a year ago.
Before its recent rise, the company’s stock had struggled, dragged down by the poor performance of its funds and the loss of some key employees.
Some money managers are selling their positions after the stock’s resurgence.
“It’s less of an obvious buy than it was 50 per cent ago,” says Jeff Young, chief investment officer at NexGen Financial Ltd., which recently sold its Gluskin Sheff stake at a profit.
But other investors see reason to hold on in hopes that Gluskin Sheff will be acquired by a larger player as the money management industry continues to consolidate. On Tuesday, independent asset manager Fiera Capital Corp. announced two deals worth a combined $156.3-million (U.S.) for a U.S. wealth management firm and a global asset manager.
Gluskin Sheff confirmed this spring that it was seeking bids for its business, but was holding off on a sale. Its extremely well-heeled clientele could be attractive to many firms eager to expand into that segment of the market.
Patrick Ruiz, analyst at M Partners Inc., said there is a possibility the firm may yet be acquired. If so, shareholders are likely to be rewarded with a substantial premium to the current share price.
“For a U.S. bank or a large Canadian asset management firm that want a high-net-worth customer, [Gluskin Sheff is] one of a kind,” Mr. Ruiz said.