Dividend Champ with a Canadian Edge

11/05/2015 10:00 am EST


Deon Vernooy

Chief Investment Strategist, Canadian Edge

The investment management industry and specifically the hedge fund industry have been described as one of the most profitable industries ever, suggests Deon Vernooy, editor of Investing Daily’s Canadian Edge.

And CI Financial Corp. (TSX: CIX, OP: CIFAF) is one of Canada’s largest independent asset management companies, with total managed assets of around C$140 billion.

The company, which currently yields 4.4%, went public in 1994 and built its assets through a consistently stellar investment performance and some small acquisitions.

CI Financial makes money from fees it charges customers to manage their investments as well as from the sale of mutual funds and other investment products through its financial adviser business.

Since 1994, the stock has performed exceptionally well. Its share price increase of 4,600% makes it the sixth-best-performing stock on the Toronto Stock Exchange. And we think CI has a bright future, despite the depressed Canadian economy.

CI has an excellent balance sheet and a stellar reputation. Growth could come by acquiring specialized investment management businesses that fit in under its multi-boutique umbrella. Since 2010, CI made several acquisitions, including Lawrence Park Capital Partners and Marrett Asset Management.

Further growth could come from managing money for rich clients; assets under management from such high-net-worth households increased from $7 billion in 2010 to $23 billion in 2015.

CI merits inclusion in our Dividend Champions Portfolio based on its attractive dividend yield of 4.4%, solid balance sheet, relatively conservative payout ratio (60% of free cash flow), and excellent cash flow.

The company’s dividend payment history is strong, despite cuts in both 2008 and 2009 that occurred because of declining profits and the costs associated with converting from an income trust to a corporation at the end of 2008.

The dividend yield of 4.4% is higher than CI’s peers and dividend growth should track expected profit growth of around 10% per year over the medium-term.

We like the business, management’s conservative approach, the scale and high levels of profitability, the strong balance sheet, and the attractive valuation.

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