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U.S. Global Investors, Inc. (GROW) pays a dividend, but with a low yield of just 1.7%, which is just above the S&P 500 average yield of 1.3%.

However, the company pays its dividends monthly, instead of quarterly or semi-annually. This allows for more frequent payments for the investors who purchase stocks primarily for income.

U.S. Global Investors is one of only 49 monthly dividend stocks.

This article will analyze the investment prospects of U.S. Global Investors in greater detail.

Overview & Recent Events

U.S. Global Investors began more than 50 years ago as an investment club. Today, it is a publicly-traded registered investment advisor that looks to provide investing opportunities in niche markets around the world. The company provides sector-specific exchange-traded funds and mutual funds and has even moved into cryptocurrencies. U.S. Global Investors has produced $27 million in revenue in the last 12 months and has a market capitalization of just $79 million.

The company has a number of niche products in its portfolio of offerings, including products in emerging markets and natural resources, US equity, and fixed income products. In addition, U.S. Global Investors’ customer base is almost entirely retail investors.

Retail investors tend to move money in and out of products more often than institutional investors, so we see this as a headwind for future growth, in addition to making results more volatile.

Indeed, assets under management (AUM) have been somewhat volatile, but have moved decidedly in the wrong direction over the past four years. U.S. Global Investors is not unique among asset managers in seeing volatile AUM, but its very small scale and its volatile AUM are concerning from our perspective.

In the second quarter of fiscal 2022, total operating revenues grew marginally over the previous quarter but 40% over the prior year’s quarter. Average assets under management edged up marginally over the previous quarter and net income grew 50%, from $0.16 to $0.24.

The U.S. Global Jets ETF (JETS) remained the largest fund of the company, with total assets under management of $3.2 billion, which was 11% higher than the amount in the prior year’s quarter. As this amount is 78% of the total assets under management of the company, it is evident that this ETF is paramount for the performance of the company.

Given the ongoing recovery of the airline industry from the pandemic, the JETS ETF is likely to remain popular in the upcoming quarters. On the other hand, given the dramatic cyclicality of the airline industry and the strong reliance of U.S. Global Investors on this ETF, investors should continue to expect highly volatile results from the company.

Future Growth Potential

We see U.S. Global Investors as struggling to grow in the coming years. We expect low earnings growth of 2%-3% annually for the next several years.

This isn’t a new phenomenon, however, as the company has struggled for years with profitability. The company has investments of its own that produce fairly sizable gains and losses in any particular quarter, including its investment in HIVE Blockchain Technologies (HVBT).

HIVE is a cryptocurrency miner, meaning it has supercomputers that mine Bitcoin, Ethereum, and others. U.S. Global Investors has increased its investment in HIVE. Last year, U.S. Global Investors purchased convertible securities comprised of 8.0% interest-bearing unsecured convertible debentures, with a principal amount of $14.3 million maturing in January 2026.

It also purchased 5 million common share purchase warrants, which expire in January 2024. The principal amount of each debenture is convertible into common shares at a conversion rate of $2.34.

This investment will help bolster results, but investors should keep in mind that a huge investment in a company that mines cryptocurrencies is far from a safe long-term strategy.

While certain quarters will show large investment gains for U.S. Global Investors, we see the long-term business model as challenged. We, therefore, do not believe the growth prospects of this company are particularly enticing.

Monthly Dividend Review

U.S. Global Investors has paid its dividend on a monthly basis for more than 12 consecutive years, which is a decent track record. At the current payout of $0.09 per share annually, the stock yields 1.7%. On a yield basis, U.S. Global Investors is far from attractive, although the company has tripled its monthly dividend payout in the last two years, from $0.0025 in 2020 to $0.0075 this year.

The problem is that with an extremely murky outlook for earnings growth, we believe dividend growth will also be very difficult to come by. On the plus side, with a clean balance sheet, we believe it can continue to pay the dividend for some time, if it were to choose to fund it with cash on hand rather than earnings.

The company has a net cash position of $26.7 million. As this position is 34% of the market capitalization of the stock, it certainly reflects a rock-solid balance sheet. As a result, U.S. Global Investors has enough cash and short-term bonds on the balance sheet that it could theoretically pay the dividend for years, even without earnings. We thus believe that the payout is safe at this point.

Key Takeaways

U.S. Global Investors is a relatively small company with many larger competitors. As a result, it struggles to carve itself out an economic moat. The company lacks meaningful competitive advantages.

Investors should also consider the various risks, including liquidity risks, of micro-cap stocks that have a market capitalization below $100 million.

Given this, and the fact that the dividend yield is low, investors looking for monthly income should consider other monthly dividend stocks.