Small-Cap Investment Firm Slumps to 52-Week Low: Opportunity or Red Flag?

In Tuesday’s trading, 77 NYSE stocks hit new 52-week highs compared to 22 hitting new lows. Over on Nasdaq, the new 52-week lows outnumbered the highs, 135 to 104.

Among the 22 new 52-week lows on the NYSE on Tuesday was Columbus-based investment manager Diamond Hill Investment Group (DHIL), a small-cap with AUMA (assets under management and advisement) of $32.4 billion as of Sept. 30.

More Yield, Less Trap: Sign up free to get Barchart’s daily Dividend Investor newsletter straight to your inbox.

I first came across Diamond Hill through Harvest Exchange, a digital advertising platform for investment firms to disseminate their thought leadership and investment theses. From time to time, Diamond Hill would post an article that interested me, and so it entered my consciousness.

While $32.4 billion is a reasonable amount of assets under management for any investment manager, compared to larger independents like Artisan Partners Asset Management (APAM), whose AUM as of Oct. 31 was $183 billion, it’s a relative pittance.

The most significant headwind a firm like Diamond Hill faces is cutting through the noise and growing its AUM, given the competitive landscape.

On Tuesday, DHIL stock hit a new 52-week low of $114.48, its 30th new low of the past 12 months. Further, except for its March 2020 low of $75, the company’s shares are at their lowest level since November 2013.

The stock’s level begs the question: an opportunity or a red flag? I believe it’s the former. Here’s why.

I Love Special Dividends

Before I get into other reasons why DHIL stock could be a buy-on-the-dip opportunity, the $4-a-share special dividend announced alongside Diamond Hill's Q3 2025 results on Oct. 30 really caught my attention.

I love special dividends. A lot of people don’t. Their rationale is that it attracts short-term investors looking to scoop up the dividend and then move on. Like anything in life, you’re going to have people who are into short-termism. I’m not one of those people.

Special dividends are an excellent capital allocation tool, on their own or in addition to the regular dividend, paid out based on cash flow at any given time. It shows that management is thinking about shareholders.

In Diamond Hill’s case, it pays a fixed quarterly dividend of $1.50 per share, or $6 annually. It’s been doing this since March 2022. Before that, it paid $1 per quarter.

In the past five years, it’s paid out $28 a share in quarterly dividends, and $27 a share in special dividends ($4 in December 2025, $4 in December 2022, and $19 in December 2021). That’s an average annual total payout of $11 per share.

Are you familiar with the concept of Shareholder Yield? It combines dividend yield with buyback yield to get a company’s total payout to shareholders. This Morningstar article does a good job explaining the pros and cons of shareholder yield.

In 2022, the last time Diamond Hill paid a special dividend, the company paid out $30.7 million in dividends and repurchased $42.2 million of its shares, according to S&P Global Market Intelligence.

Based on 3.01 million shares outstanding as of Dec. 31, 2022, and a share price of $185.02 at the end of 2022, Diamond Hill had a market cap of $556.9 million. That gave it a shareholder yield of 13.1% at the time.

Not too shabby.

The Business As It Exists in Late 2025

Diamond Hill’s stock is down nearly 26% in 2025, 31% over the past 12 months, and 25% over the past five years.

If not for dividends and share repurchases, a shareholder’s total return would be underwater. As it stands, DHIL’s five-year total return is 3.01%, considerably less than the 14.8% total return for the SPDR S&P 500 ETF (SPY).

Clearly, reversion to the mean needs to gain traction for long-time shareholders. The question is, will it?

Between 2012 and 2018, Diamond Hill’s annual revenue grew for six consecutive years, from $66.7 million to $145.6 million. Since then, it’s had four down years and two up, with 2025 yet to be completed. As of Q3 2025, revenues were down 1%, so a fifth year lower looks likely.

So, between 2012 and 2024, its compound annual revenue growth rate was 7.1%. That’s actually not too bad for an investment manager. I referenced Artisan Partners earlier. Its revenue CAGR over the same period is 6.8%, 3o basis points lower.

Diamond Hill has been transforming the types of assets it manages over the past three years. In 2022, fixed income accounted for just 7.9% of its $26.6 billion under management. In 2024, that was up to 19.4% of $31.9 billion. At the end of Q3, it was 28.1%.

It is now adding $1 billion in fixed-income assets under management every four or five months. The diversification into fixed-income continues to gain traction.

The issue that’s hurting Diamond Hill’s share price isn’t revenue, it’s profits. The company’s gross profit margin in 2021 and 2022 was over 53%; its EBIT (earnings before interest and taxes) margin was nearly 42%. In the trailing 12 months ended Sept. 30, the gross profit and EBIT margins were 45.8% and 29.3%, respectively. Considerably lower than before.

The good news is that the margins have stabilized.

During the third quarter, it converted its Large Cap Concentrated mutual fund to an ETF. The actively managed Diamond Hill Large Cap Concentrated ETF (DHLX) aims to invest in 20 or 30 large-cap stocks. After the conversion, Diamond Hill has 12 mutual funds. I’m sure Diamond Hill will convert a few more in the months ahead.

Combined with the growth in fixed income, I see a healthy business, but one out of fashion with investors. Aggressive investors ought to take a closer look. The worm could be ready to turn.

On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

More news from Barchart