The investment management industry and specifically the hedge fund industry have been described as one of the most profitable industries ever.

And CI Financial Corp. (TSX: CIX, OTC: 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.

Since 1994 CI 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 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. The asset management business provides the bulk of the company’s income and is also considerably more profitable than the investment advisory business.

Like many boutique businesses, the asset management business is structured so that each manager specializes in a different asset class. This gives investment managers the freedom to follow their own convictions.

The assets CI manages have a bias toward public stocks, which make up 61% of the overall portfolio, while fixed income contributes 28%. About a third of the asset base is denominated in Canadian dollars, with another third in U.S. dollars.

CI has increased assets consistently over time: by 8% per year over the past 10 years and a solid 13% per year over the past three years.

Asset growth comes either because new assets were added or because existing assets increased in value. Asset management companies can’t do much about the direction of the markets, so the key is to deliver attractive products to investors and generate strong returns.

Besides benefiting from the natural tailwind that rising markets provide, CI also succeeded in attracting new client money. Net inflows over the past decade averaged 1.7% of assets under management and remained positive even in 2008 and 2009, when most asset management companies suffered as investors bailed out of the markets.

The way to attract new money is to have a strong track record of investment performance. CI does extremely well in this regard, with 65% of its long-term mutual funds in the top half of the competitor rankings over the last 10 years, although the performance has slipped somewhat in recent years.

The company’s in-house distribution arm—Assante Wealth Management and Stonegate Private Council—as well as various third-party distributors sell CI’s investment products to the retail market.

Future Fortunes

CI compares well to some of the top international asset management companies and is at least as profitable, if not more so, than BlackRock, Invesco and Brookfield based on EBITDA margins or return on equity for the past five years. Dividend growth was a reasonable 11% per year over that time but fell behind some of the other companies listed in the table.

Despite the generally stellar performance, the share price lags that of CI’s more illustrious peers, creating an opportunity for investors. Nevertheless, CI Financial does have some hurdles to clear. First, to sustain its excellent profitability in the future, the company needs to use its size and reputation to its best advantage. But with a 9% share of the sluggish Canadian mutual fund market, growth will be hard to come by and will depend mostly on market appreciation.

Second, CI depends heavily on mutual fund sales, and fund fees generally dropped as cheaper products, such as exchange-traded funds, became more popular. Although CI has slightly lower management fees than its direct competitors, additional regulations for more fee disclosure may suppress the company’s fees and margins.

On the other hand, 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, all specialist investment managers.

Further growth could come from managing money for more rich clients through the financial advisory networks of Assante and Stonegate. Assets under management from such high-net-worth households increased from $7 billion in 2010 to $23 billion in 2015.

Dividend Champion Qualities

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.

Investors also should be aware of the strong link between company performance and the stock market. The company says a 10% decline in the market over a full year will decrease pre-tax profits by $63 million (about 9%).

A Good Value

The stock is valued on a one-year forward price-to-earnings ratio of 13, which is a little higher than CI’s large Canadian peers but on par with its U.S. peer group. Given the superior levels of profitability, a higher valuation is in order, in my opinion. 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.

Buy CI Financial below C$33 or US$25.