“Collect a 8.4% Dividend From a Unique American Gold Investment”

By Travis Johnson, Stock Gumshoe, November 10, 2010

Dividends + Gold = Pretty much 99% of the questions I get from readers in any given day, so the headline of this teaser about getting a “8.4% Dividend From a Unique American Gold Investment” from Ian Wyatt for his Small Cap Investor Pro caught my eye: high dividends and gold? Where do I sign up!?

Not so fast … let’s find out what the heck he’s talking about first, shall we? After all, we know that several of the huge gold miners pay a dividend, though it tends to be paltry at under 1% (even for royalty plays like Royal Gold (RGLD)), and that there are few much smaller miners that start dividend payments from time to time and get everyone excited (like Gold Resource, which is up 50% or so from when I wrote about it for a Lombardi teaser back in August, even though that dividend yield was even tinier) … but you never hear about a high yielding gold miner.

And alas, we’re not hearing about one of those today, either — looks like this is a company that’s only tangentially in the gold business. Let’s listen in on a bit of the pitch from Wyatt, shall we?

“If you’re looking for a way to cash-in on the historic run-up in gold prices, you don’t need to look any further than one company’s stock.

“It’s a cash-rich gold company that’s about to start paying a 8.4% dividend in the next couple weeks.

“This company has little to do with mining, refining, exploration, drilling or smelting.

“Instead, they provide ratings for the quality and value of gold.

“In short, they’re completely insulated from overhead and downside typically found with your average miner or explorer. This firm has no heavy equipment to maintain, no vast tracts of gold fields to secure, no environmental groups to tangle with.”

Ah …. so if you’re a coin collector, you probably already know who this secret stock is. For everyone else, let’s keep digging:

“They simply grade gold (and silver) and collect their fee. And they’ve had some stellar growth recently: 28% growth in earnings the last quarter alone.

“They have nearly $20 million in cash, with ZERO debt. With a market cap of just over $100 million, that’s a huge safety margin for shareholders.

“If you buy this company today, you’ll benefit from the continued bull market in gold and silver – and unlike other gold investments you’ll have a 8.4% dividend to show for it, on top of any capital gains appreciation.”

OK, so some solid, verifiable clues to go with the basic description of the business. And to make it perfectly clear, Wyatt also goes on to tell us that they’re the industry leader:

“All of their competitors are small-time regional privately held firms, with nowhere near the reach or expertise.

“If you want to grade your gold or silver, there’s only one game in town…”

That should be enough, right? Indeed, I can now tell you that this must be:

Collectors Universe (CLCT)

This is a service company — they grade and authenticate all kinds of collectibles, though what’s being described here is their PCGS division, the Professional Coin Grading Service. I don’t know this business well and am definitely not a coin expert, but people tell me that this is the most respected of the coin graders and is somehow better than the other big one, Numismatic Guarantee Corporation (NGC — not publicly traded) … dunno if that’s true or not, both firms believe themselves to be the industry standard. This segment of their business accepts coins submitted by dealers (usually), puts them in a tamperproof case and authenticates and grades them, and charges a fee for that service. If you’re trolling on eBay for gold coins, for example, and you see something like PCGS MS 70, that means it’s a coin that’s graded just about perfect from this particular grading service, and it should be a in a special little transparent case with a hologram and an identifying number — and it should also cost more than the coins with lower grades or that are ungraded, all else being equal.

There are several big name rare coin dealers who own big chunks of CLCT, like David Hall (also the president of CLCT, owns 12% or so) and Van Simmons (on the board, owns ~3%), and several other large insider owners whose names I don’t immediately recognize but are probably involved in the collectibles business. The company also authenticates and grades other collectibles, from signed baseballs and rare autographs to stamps and baseball cards, and they run conferences and collectibles shows and host an online exchange for buying and selling coins, stamps, and etc.

It’s a pretty high-margin business, as you might expect, and the company does not have any debt or big capital requirements, so they are able to pay a solid dividend. They haven’t been a growth darling by any means, revenue has been pretty flat for years, but from the looks of their SEC filings they have cut costs and cost of goods gradually to the point that they’re now showing a pretty dramatic increase in profit on sales that aren’t much different than three or four years ago, which is impressive and at least gives some sign of responsive and responsible management. They just finished (July fiscal year) by far their most profitable year out of the last ten, and they reinstituted the dividend about a year ago (after a year off) and have been growing it already — the quarterly dividend is now 32.5 cents, so that’s an annual payout of $1.30 and a yield, on the current price of $14.50, of almost 9%.

So there you have it — I don’t know a lot about this company or the coin or collectibles businesses, but I’d guess that the current gold and silver coin mania may trickle down into creating some more coin collectors even if the big boost in sales of bullion coins doesn’t necessarily create more business for CLCT right away. Perhaps the demand for bullion coins may be also pushing up the interest in rare, graded or collectible coins, so that would probably be good for them.

I expect that stuff like baseball cards and stamps and autographs probably move in their own big waves and waxing or waning popularity probably do impact sales at CLCT — and I have no idea what’s popular right now, or advancing or declining. I dabble a bit in book collecting but, like most small collectors, I just squirrel away the stuff I like, I don’t pay much attention to the market and what moves it. There does seem to be a base line of collecting interest in the traditional stuff like coins and stamps, though probably the younger generations aren’t as enthused, but it must be hard to predict the wild swings of more newly popular things, or even of sports memorabilia that depends to some degree on demographic popularity and team performance. And it wasn’t that long ago that folks were probably wondering whether they could invest their 401K in Beanie Babies.

I haven’t looked more closely at CLCT’s past performance, though they’ve certainly had some very unprofitable stretches in recent years (in part I think that was a result of expanding into the much bigger jewelry business, including grading, authenticating and marking gemstones and diamonds, but they’re in the process of getting completely out of that business to focus on their core collectibles work, which is probably smart). From here it looks like a profitable and nicely yielding stock, though if you expect growth that means you expect them to do something in the future that they haven’t really done in the last ten years — and while they have turned this into a nicely profitable business, you’d have to make your own judgement on how consistent that profitability is likely to be.

And of course, a nice big yield that seems well covered by current income is nothing to sneeze at, but I think it’s a bit of a stretch to call this a “gold” business.

It’s your money, though, and I’m sure there are plenty of you out there who know more about CLCT and the collectibles business than I do — let us know your thoughts with a comment below, thanks!

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18 Comments on "“Collect a 8.4% Dividend From a Unique American Gold Investment”"

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DaveB
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DaveB
November 10, 2010 2:30 pm

PCGS is slightly older than NGC (founding years were 1986 and 1987, respectively). I don't collect numismatics, but from what I've seen in various blog posts and whatnot, they like to throw mud at each other.

Gordon Berger
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Gordon Berger
November 10, 2010 3:54 pm

PCGS and NGC are both highly regarded, but having watched PCGS move to the front of the pack in the sports card and memorabilia authentication and grading business, I'm incined to stick wtih them as the Cadillac of the industry.

Missing Something
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Missing Something
November 10, 2010 6:21 pm

One of the editors of Stansberry & Associates’ Daily Wealth e-letter frequently steers people toward Van Simmons, one of the large owners you mention in today’s article.

Nick S
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Nick S
November 10, 2010 8:34 pm
Sorry didn't know where to post this: Anyone know what Jeff is talking about – This company's input cost is soaring, and it hasn't yet passed those costs to the consumer. Jeff says the shrinking margins will hurt the company's earnings next quarter (expectations are already priced for perfection). Plus, Jeff says shorting this stock now is super-low risk: This is an ideal spot to short the stock. If it breaks through resistance, we can exit the trade immediately for only a small loss. On the other hand, if resistance holds and the stock turns lower, the odds increase that… Read more »
Jeff
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Jeff
November 11, 2010 12:02 am

McDonald's

Wiebach
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Wiebach
November 11, 2010 7:43 am

There may come a time when most historic, collectible coins have been graded and encased in plastic, and PCGS's business may dry up.

Gene
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Gene
November 11, 2010 7:48 am

This companies dividend is more than its projected earnings.

Ray
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Ray
November 13, 2010 7:39 pm

What about the noregian income certificates?

Steve S.
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Steve S.
November 14, 2010 1:51 pm
If you need a microscope to see the reason why you are buying a coin, I doubt your heirs will find many buyers who think such a coin is "valuable". In the last gold rush, many coin dealers became bullion dealers and suddenly wealthy. They bought up high grade coins which they loved and drove prices for the MS 65-plus stuff to 3X and 4X normal prices. Then the market crashed and cut prices by 2/3. Coin grading was "revised" too, also downward. Dealers had to crack open previously graded coins because the only way coins traded was with the… Read more »
Gold Investment
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November 23, 2010 12:55 pm

I agree with many of the ideas stated in this article. However, I think that investments are made easier when you have the most up-to-date information. I have found that gold investment newsletters have made managing my gold commodity investments easier.

mike
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mike
February 1, 2011 7:47 pm

If inflation heats up, this could be a good investment.

Gravity Switch
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November 11, 2010 9:08 am

Dunno, sounds like it must be Jeff Clark, no? I'd need some more clues, because those hints apply to almost all the packaged food producers and probably quite a few other industries right now.

Bigg Fredd
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Bigg Fredd
November 11, 2010 10:16 pm

A lot of their business is crackouts from dealers taking advantage of lower "standards" to get their coins reslabbed at a higher grade. Sometimes it works, and the price difference can be substantial enough to pay for MANY attermpts.

Bigg Fredd
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Bigg Fredd
November 11, 2010 10:39 pm
Both are Johnny come latelies to authentication, which ANACS started in the mid-70s. What changed the game was they added grading, which in theory made coins as tradable as stock. Any MS65 was worth the same amount. This is nonsense, of course, since a MS65 that might regrade as a MS66 could easily be worth ten times as much. The problem is that authentication is pretty straighforward, and a coin is either real or it isn't. There are 70 grades, plus modifiers like toning, full horn, full bell lines, full bands, proof like, deep mirror, etc, leaving LOTS of room… Read more »
Bigg Fredd
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Bigg Fredd
November 11, 2010 10:39 pm

Before you invest in graded coins, find five cheap MS70 graded coins (or any other high grade), carefully remove them from the holders, and send them to the same company and see if they get the same grade. The reason I say MS70 is because that means a perfect coin. Now compare the list prices for the old grade and the new one.

Bigg Fredd
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Bigg Fredd
November 14, 2010 6:34 pm

Use the search box for "norwegian income certificates"

Bigg Fredd
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Bigg Fredd
November 14, 2010 6:47 pm
It's called condition rarity, with coins being given huge prices for infinitesimal differences in condition which may not be agreed upon when regraded. Common MS65 Morgan dollars were $400 until more and more got that grade (55 BAGS of 1881s, IIRC) and even though the coin market is hot now, they're $150. No matter what some promoters would like you to beLIEve, any coins available in sufficient quantities to promote are by definition not rare. Even the famous 1909svdb cent had an original roll of 50 sold last year, and there are about 50 on ebaY at any given moment.
Richard
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Richard
June 7, 2011 8:56 am
PCGS and NGC have been around since the 80's and have set the standard in coin authentication encapsulation and grading. ANACS is older but ANACS new holders are a PCGS copy in size and shape and color. I am a collector and dealer and we all know that ANACS is good but does not usually elicit the same confidence when buying sight unseen coins that are graded. PCGS coins get more attention and price in general than even NGC with exceptions of course. Truly rare coins can be in just about any of the big three holders. But generic coins… Read more »
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