A 9% Dividend Stock That Deserves Your Attention

Gluskin Sheff + Associates Inc. (TSX:GS) may seem like an attractive dividend stock based on total yield, but investors should be aware of the underlying fundamentals.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Gluskin Sheff + Associates (TSX:GS), a little-known wealth management company, has been one of the most lucrative dividend stocks I’ve come across. I took a closer look at the company’s history and underlying fundamentals back in December. This time, I want to analyze the dividend and valuation to figure out if I missed something.

A quick recap: Gluskin Sheff is an independent wealth management company that provides portfolio management and investment consulting to high-net worth individuals, family offices, and institutional investors.

Since the company was launched in 1984, it has expanded assets under management (AUM) from $26 million to over $9 billion at the end of 2018’s financial year. That’s a compounded annual rate of 18.8% over 35 years — a stellar performance for any wealth management company.

Since I wrote about the company, the stock is up nearly 12%, briefly touching $11.5 earlier this month. With a $0.25 quarterly dividend, the yield works out to roughly 9%. From the time the company went public in 2006 to last week’s quarterly dividend, the company has paid $18.46 per share to investors collectively.

However, that has barely dented the total return of the stock, which is down 23% over the past year, 46% over the past three years, and 64% over the past five years. In other words, Gluskin Sheff wasn’t a great investment, despite the hefty dividends.

If you consider Gluskin Sheff’s business, you’ll expect a close correlation of both the top and bottom lines with the fate of global capital markets. After all, AUM grows organically when asset prices are up, and the company derives its earnings from a combination of performance fees and management fees, like any other wealth management firm.

However, the revenue and net income is barely up, despite the tremendous bull market across the world and especially in North America since the 2008 financial crisis. Annual gross profit has declined from $93 million in 2015 to $84 million in 2018, while net income has declined from $52.3 million to $32.6 million over the same period.

Even in the most recent quarter, the total AUM declined 7.9% from September 30, 2018, due to “negative investment performance … and net withdrawals.”

There can only be three reasons for the company’s declining profits and revenue: client withdrawals, lower fees, and bad performance. Only performance is within the management’s control. Meanwhile, fees have been declining across the sector with the rise of passive investing and growing competition. Meanwhile, withdrawals are based on investor sentiment and perceived performance.

The performance will have a direct impact on the dividends. Gluskin Sheff’s annual earnings and net cash per share are both below the rate of annual dividend. This doesn’t bode well for investors.

Bottom line

Gluskin Sheff may seem like an attractive dividend stock based on total yield, but investors should be aware of the underlying fundamentals. Its fate is hard to predict, and the dividend is just as volatile.

Low cash and unstable earnings make this a less-than-ideal dividend stock. However, if you’re optimistic about the North American capital markets and confident in Gluskin Sheff’s ability to attract more clients and outperform major indices, this could be a good time to buy.

Just Released! 5 Stocks Under $50 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $50 a share.

Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.

Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vishesh Raisinghani has no position in any stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

dividend growth for passive income
Dividend Stocks

Why I’d Invest in Canadian Value Stocks for Both Stability and Growth

Three Canadian value stocks are buying opportunities for investors looking for stability and growth.

Read more »

investment research
Dividend Stocks

Got $15,000? 3 Blue-Chip Stocks Every Canadian Should Consider

Here's why investing in blue-chip TSX stocks such as CNQ and CNR should derive outsized gains in 2025 and beyond.

Read more »

protect, safe, trust
Dividend Stocks

Where I’d Allocate $20,000 in 2 Safer High-Yield Dividend Stocks for Retirement Needs

Here are two safer, high-yield dividend stocks I'm looking at for my retirement needs.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 Reasons I’m Considering Enbridge Stock for a $5,000 Investment This April

I'm considering Enbridge stock to provide some defensive appeal and a juicy dividend to my long-term portfolio.

Read more »

monthly desk calendar
Dividend Stocks

A 9.2% Dividend Stock Paying Cash Every Single Month

With one of the highest dividends out there, this dividend stock deserves attention in your portfolio.

Read more »

Happy golf player walks the course
Dividend Stocks

Build a Powerful Passive Income Portfolio With Just $20,000

If you are worried that the bear market could reduce your savings, these stocks can build a powerful passive income…

Read more »

Hand Protecting Senior Couple
Dividend Stocks

How I’d Use My $7,000 TFSA Contribution to Start Retirement Planning

These TSX stocks have solid fundamentals and are well-positioned to deliver significant tax-free total returns over time.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

How to Turn Your TFSA Into a Gold Mine Starting With Only $10,000

It doesn't have to be complicated or scary. You can turn any portfolio into a major gold mine.

Read more »