Collective Universe: Is The Dividend Really That Scary?

Introduction
Collectors Universe (Nasdaq: CLCT) recently declared a quarterly dividend of $0.35, in line with the five previous quarters. At current prices, this leads to a dividend yield of a little over 8%. Many argue this is unsustainable, and actually use it as an argument to stay away from the stock. In this contribution, I would like to propose an alternative view that is more centered around the fundamentals of this business and its prospects. I conclude that although the dividend is fairly high, it is definitely sustainable for the next years. More importantly than just the dividend, the company operates a good business with room to grow. It has a strong competitive advantage and generates good cash flows. I believe at its current price levels Collectors Universe is an excellent buying opportunity.
Growing Revenues and Cash Flows
Collectors Universe grades and authenticates collectables, operating in three segments: coins (68% of revenues), trading cards (24%) and other (8%). The company can be considered an authority in the field of coin grading; collectors place value on a coin that is graded by Collectors Universe. Figure 1 shows the segmented revenues for the last eight years.

Total revenues have grown at an average of 6% during the last decade, with both cards (6.6%) and coins (7.7%) growing steadily. Within that same decade, Cash flows from operating activities (CFOA) have also increased (4%). This overview shows that the often heard argument that... Read more

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