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Computer Services Stock: Time To Buy The Tiny Dividend King (OTCMKTS:CSVI)


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Computer Services, Inc. (OTCQX:CSVI) recently joined the dividend kings, a group of companies with 50 or more consecutive years of dividend increases.

At first glance, Computer Services seems like an unlikely candidate to be the king of anything. It is a small cap selling over the counter. It is not a member of the S&P 500, so it is not a Dividend Aristocrat. Yet it increases dividends by eight recessions. Additionally, the company recently reported:

  • 22 consecutive years of revenue growth
  • 25 years of net income growth
  • 50 years of dividend growth

business

CSVI has been offering computer services to customers since the beginning of its history. The company opened its doors in 1965 with six employees, three customers, and a $321,400 Burroughs B300 computer. The computer sorts checks and deposit slips printed with MICR characters at a rate of 1,500 pieces per minute.

The company is also reorganizing two operational segments in 2020.

The core banking services are available at Enterprise Banking Group. This includes payment solutions as well as mobile and internet banking.

the Business Solutions Group covers many services including:

  • Document solutions: imaging inspection, branch and merchant acquisition, various document delivery services
  • Managed services: cyber security, network management, cloud-based management services, corporate intranets, telecommunication, remote banking connectivity, web hosting, board portals, software licensing and installation, and professional services
  • Regulatory Compliance: compliance software, homeland security, anti-money laundering, anti-terrorism financing, and fraud prevention

A detailed list of the company’s many services can be found in the company’s additional disclosures in the annual report.

The financial services industry is subject to many government regulations. This provides a moat for the company rather than a risk. The company has become an expert in meeting regulations and coded its software knowledge for all its clients. Some companies need to do significant work to adapt this knowledge and incorporate it into software.

The software must be accurate, but it must also be functional. Computer Services was recognized by Aite Group as providing the “best user experience” in its 2019 AIM Evaluation. A report wrote,

no wonder they got the award. CSI’s efficient and transparent management team, coupled with their high retention rate is the main reason for this success.

Tim Viere, CEO of EntreBank said on choosing Computer Services,

By every measure, CSI rises to the top as the best banking services provider that can provide the innovative technology advancements and customer service we need to deliver that value for our customers.

In 2019, the company was recognized as one of the Best Places to Work for seven consecutive years by the Kentucky Chamber of Commerce and the Kentucky Society for Human Resource Management. The company was also named one of the Best Places to Work in Kentucky in 2022, making the list for ten consecutive years. The company is also recognized as a best place to work in Illinois. The company has an equity rating of 3.7 on Glassdoor.

Directors and executive officers together have a 2.22% share.

As of this writing, the dividend is sitting at a shade over 3%.

PURCHASE

The company’s stock price more than doubled in 2019, falling during the pandemic in 2020, rather than rising in a V-shaped recovery. Since mid-2020, however, the stock price has been on a downward trend. In the last six months it repeated the swan dive it did during the pandemic. The stock price is currently at a pandemic low:

CSVI stock price
YCharts data

This is the same company that has consistently grown revenue, earnings, and ROA over the years:

Computer Financial Services
YCharts data

It’s no surprise that the P/E for the company is now at a low not seen since 2019, a low seen only three times in the last decade:

CSVI stock price and EPS
YCharts data

Possible Risks

The biggest risk at the moment is that the stock price will continue to decline. This is almost a quintessential example of a falling knife. It’s usually not a good idea to try to catch one.

Additionally, the stock is small and does not trade on major exchanges. Such stocks are generally more volatile and risky than other stocks.

Keep in mind, however, that this is not a typical small cap company. Its strength is clearly visible. The company is not at risk in any way.

The dividend is also not risky. The company boasts a Current Ratio of 2.48 and a Quick Ratio of 1.88. These numbers haven’t changed much over the years. It’s hard to imagine a dividend king ceasing dividend growth after 50 years.

The biggest issue may be that its overall return over the long term is lower than what growth investors typically prefer. The recent drop in stock prices may well compensate for that. I personally profited from stock recovery from the pandemic. I expect to see another nice return from this low, even if the stock price rise is not as dramatic as it was two years ago.

Conclusions

Computer Services is as strong a company as you’ll find anywhere, growing its revenue, net income, and dividends through good times and bad. It has weathered past recessions well, and it should do just fine in the next one. Its software has even won an award, and the company has gained notice as a great place to work in Kentucky and Illinois.

Income growth should continue, slow and steady. The stock price must continue its rise sooner or later. The lower it is, the more dramatic the recovery.

I recently bought shares at $38.27 for my portfolios, to replace what I sold a few months ago. I intend to dollar average additional positions in the coming months.



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