Among the dividend aristocrats of the Canadian stock market, you might say that AGF Management is king.
At 9.2 per cent, the yield on AGF's B-class shares tops all of the 65 stocks in the S&P/TSX Dividend Aristocrats Index. For context, the yield for the index as a whole comes in at about 3.8 per cent. High yields always come with trade-offs, and AGF is a great example.
In a recent note to clients, analyst Harry Levant of IncomeResearch.ca explained that AGF's "substantial" yield is due to two factors, the first of which is a dual share structure. He said there are 87.1 million Class B non-voting shares and 57,600 Class A voting shares held by the members of the company's board of directors. Levant says that in addition to not having a vote, Class B shareholders don't have the right to participate in a takeover bid for the Class A shares. "This is a dual class share structure that is structured entirely in favour of the management, regardless of performance," he writes. Dividends are paid at the same rate on both groups of shares. But the net effect of the differing share structures is that it "locks out the Class B shareholders from capital appreciation."
Levant notes that AGF is one of the country's largest independent money management firms, with operations in North American, the U.K., Ireland and Asia. AGF is best known for its family of mutual funds, which account for a little more than half of its $37-billion (Canadian) in assets. Management and advisory fees are the main source of revenue for AGF, and Mr. Levant said there has been some attrition in the retail assets the firm manages. This is the second factor that explains AGF's high yield.
Levant describes the income flow from AGF.B as being "reasonably secure." Investors have been hard on the company's shares, though. The year-to-date loss through Sept. 30 was 12 per cent, and the cumulative decline over the past five years comes in at 30 per cent. AGF may qualify as a dividend aristocrat, but its shares have been something of a royal pain for investors. It's a classic high-yield trade-off.
Rob Carrick