Gluskin Sheff + Associates Inc

On my other blog I am today writing about dividend growth ...continue...

I do not own this stock Gluskin Sheff + Associates Inc. (TSX-GS, OTC-GLUSF). I started to review some of the stock recommended by Jennifer Dowty from a column she wrote and I reviewed in February 2010 on Dividends and Special Dividends. The title of the article in Investor's Digest was Dividend Stocks: Buy, Hold and Collect. Jennifer is now a Portfolio Manager for Manulife Asset Management Limited.

I did a spreadsheet on this stock in February 2010 and was not impressed with the stock. I chose this stock because I recognized the names of Gluskin and Sheff. I reviewed problems with this stock in February 2010. This stock peaked in 2006 and had not recovered by August 2011 and still hasn't. This includes Revenues and Earnings. The Stock Price and Cash Flow peaked in 2007. I stopped looking at her stock, because of this one but decided to take another look in August 2011. I did pick a good one in Computer Modelling Group (TSX-CMG).

First let's talk about dividends. This company has provided extra dividends on a yearly basis. The dividends have also grown 11% and 14% per year over the past 5 and 6 years. Dividends were started in 2007. Dividends were increased in the financial year ending in 2013 by 7.7% with a year over year increase of 10%. The latest increase in 2014 will be at 14.3%. Also, a special dividend of $1.40 per share was declared for financial year ending in June 2014.

What is of some concern is the high Dividend Payout Ratios. The company seems to be paying out over 100% of their earnings and cash flow. For the financial year ending in June 2013 the DPR for earnings per share was 117% and for cash flow per share was 100%. The projected DPRs for 2014 are at 133% and 124%, respectively.

However, if you look at actual amount of dividends paid to the actual amount of earnings over the last 5 years it is not so bad with 75% of earnings paid in dividends. The actual amount of dividends paid to actual cash flow is still high at 91% of cash flow paid out.

Shares have grown at the rate of 18% per year over the past 8 years but there has been no growth in shares over the past 5 years. There is some growth over the past 7 or 8 years where I have values, but nothing great over the past 5 years.

The Assets under Management have grown by only 0.63% over the past 5 years, but a better 7.55% over the past 7 years. The 7 year growth is I guess fine, but still not great. The Revenues have growth at the rate of 3.4% per year and 11.30% per year over the past 5 and 9 years. However, Revenue per Share is not as good with the 5 year growth at 3.5% but the 9 year growth has declined by 4% per year.

As of the end of the financial year in June 2013, this stock has not made much in the way of total return for shareholders, with the 5 year total return a decline of 5% per year and the 7 year total return at just 3.74% per year. However, to date, the total return is much better with the 5 and 8 year total return at 34.29% and 6.85% per year. The dividend portion of the return to date is 12.87% and 6.52% per year with the capital gains at 21.42% and 0.33% per year.

Cash Flow per Share is also not great with growth over the past 5 years at 5.4%, but with a decline of 3% per year over the past 8 years. The book value per share growth is probably the best at 7.2% and 21% per year over the past 5 and 8 years.

The Return on Equity is quite high at 57.1% for the financial year ending in June 2013. The 5 year median ROE is at 43.8%. These are very high. It probably is not a concern on this stock as the stock is not highly leveraged.

The Liquidity Ratio is very good at 3.09. The Debt Ratio is also very good at 2.90. The Leverage and Debt/Equity Ratios are quite low and therefore very good at 1.52 and 0.52.

Analysts are look for mostly a modest decline for the financial year ending in June 2014 and mostly a modest increase for the financial year ending in June 2015. The growth in dividends cannot continue without corresponding growth in earnings and cash flow. See my spreadsheet at gs.htm.

This is the first of two parts. Second part will be posted on Tuesday, October 22, 2013 and will be here.

Gluskin Sheff is an independent investment firm that manages portfolios for high net-worth individuals and institutional clients. Its web site is here Gluskin Sheff.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.