AGF Management chief executive Blake Goldring is shown in 2008.Yvonne Berg/The Globe and Mail
AGF Management Ltd. is cutting back its hefty dividend, a major step in the plan to turn the struggling asset manager into a more influential international investment business.
The company said Tuesday that it would prune the company's dividend by about 70 per cent in the first quarter of 2015, a move that will give AGF the flexibility to invest more in growing its business and deter investors who aren't aligned with the company's new direction.
"We've paid out a dividend for 46 years so it's something we want to maintain," Blake Goldring, chief executive officer of AGF, said in an interview. "But we took a hard look at the yield the industry is paying today. We want to get down to more what our peers are paying, from a dividend perspective."
AGF said Tuesday that it will pay out its quarterly dividend of 27 cents a share on Jan. 16, 2015, but warned that it will subsequently cut its dividend to just 8 cents. Looking back on the past four quarters, that would be the difference of paying out about $27-million, rather than the more than $90-million AGF passed on to shareholders.
But it's unclear exactly what the savings will be for AGF next year, because the company plans to renew its share buyback program in February next year.
AGF has more than $270-million in cash it could have used to prop up the dividend in coming years, but some analysts viewed the payouts as unstable for a fund manager coping with heightened competitive pressures and tight profit margins. The company has been working to improve investment results and has slowed the net outflows of money from its mutual funds in recent quarters.
AGF's stock is down nearly 40 per cent in 2014 and fell 14 per cent on Tuesday.
Among the shareholders most affected by the dividend cut will be the founding Goldring family, whose stake earned more than $14-million in dividend income last year. That would shrink to about $4-million at a rate of 8 cents a share. It was Blake's father, Warren Goldring, who co-founded of AGF, named after the American Growth Fund, the first U.S. equity fund opened to Canadian investors. AGF would become known primarily as a mutual fund investor and retail funds still make up more than half its assets under management.
The rich dividend yield AGF was paying kept some valuable institutional investors away at an important time, Mr. Goldring said. "To the extent that there were people only invested for the very high yield, it's just not realistic in this environment." The dividend yield hit 11 per cent as of Monday's close before the announcement.
AGF was already poised to be removed from the iShares S&P/TSX Canadian Dividend Aristocrats Index, having not raised its dividend since 2011. Such a change would trigger about five million shares being sold from the ETF, according to a report by Scott Chan, analyst at Canaccord Genuity.
Mr. Goldring is not concerned about the stock that will come available as a result. "Firstly, we don't want to be held hostage, ever, to an index," he said, adding that the situation had weighed on the company's share price.
AGF is also contending with industry-wide trends reshaping the market for asset managers, such as changing regulations on fee disclosure and the threat that trailer fees, which are payments fund companies make to advisers who sell them, could be eliminated. Fund companies have begun to adjust their business for these changes, with several lowering prices in recent months.
Earlier this year AGF brought on Kevin McCreadie as chief investment officer to oversee the firm's $35-billion assets under management and improve fund performance. Mr. McCreadie said Tuesday that the company could better use the capital that has paid the dividend to boost the company's investment performance, asset base and client relationships.
Mr. McCreadie wants to build out the company's institutional investor base and alternative investments platform, which includes infrastructure. He says the company is contemplating opening representative offices in the Middle East and Asia to reach out to more prospective clients.
"In our minds this is a better use of the cash … we can return capital over time through a share price that increases with our growth," Mr. McCreadie said.
With files by reporter Jacquie McNish