AGF Management to reduce dividend, spend the money on growth initiatives

TORONTO – AGF Management Ltd. (TSX:AGF.B) shares plunged to their lowest point in more than a year on Tuesday after the company said it would slash its dividend by 70 per cent.

The investment manager said its upcoming quarterly dividend payment in January will remain at 27 cents per share, but it will drop to eight cents per share for the following payment.

AGF stock closed down $1.42 or 14.65 per cent at $8.28 on the Toronto Stock Exchange on volume of more than two million shares, much higher than the issue’s daily average of less than 300,000 shares.

Kevin McCreadie, AGF’s president and chief investment officer, said a lower dividend is “prudent” given that it was relatively high compared with peer companies and there are better ways to use the cash.

“You have three ways of bringing capital back to a shareholder. One is a dividend, obviously. The second is actually investing in your business, if you believe you have pretty good growth opportunities — which we do. And third, obviously, is a buyback if your stock is cheap enough,” McCreadie said in an interview.

“So there’s a balance to all three of those that a firm should address and adopt and I think that’s really what we’re doing.”

He said AGF plans to renew its share buyback program when it expires in February, but doesn’t feel the higher dividend was achieving a sufficient payback in terms of shareholder value.

AGF had about $278.1 million in cash and short-term investments on Aug. 31, when its financial third quarter ended, which McCreadie says is “ample” for its needs even if mutual fund investors increase redemptions due to weaker market conditions.

“We could weather a heck of a storm, frankly, at this level. So the question not really about weathering the market. It’s just the prudent thing to do. We weren’t getting rewarded for a dividend this high.”

InstarAGF Asset Management Inc., a joint venture launched earlier this year with Instar Group, is one of the company’s growth initiatives. It will focus on a range of “alternative” investments, beginning with infrastructure.

InstarAGF launched its first fund in the summer and McCreadie said it will start a second early next year.

AGF also has financial products geared towards institutional investors that are distributed globally and is working on new products for retail investors.

“All three of those are pretty good opportunities to invest, to drive the future of the company,” McCreadie said.