March 17th, 2011 | 
Category: 
Power Financial Corporation is a very interesting company to look at. It is mostly a holding company of a number of other companies with a couple of publicly traded companies in the mix. Namely, Great-West Life (TSE:GWO) and IGM Financial (TSE:IGM). What’s interesting is that no only was Power Financial Corporation a Canadian Dividend Aristocrat but its parent company, Power Corporation (TSE:POW), was also an aristocrat along with its two major holdings; Great-West Life and IGM Financial.
By holding Power Financial, you partially own 2 other Canadian dividend aristocrats and minimize exposure of each company’s niche markets. In fact, the full set of companies it has a stake in is as follow:
- Great-West Lifeco Inc.
- London Life Co.
- Canada Life Assurance Company
- IGM Financial Inc.
- Investors Group In.
- Mackenzie Financial Corporation
- Pargesa Holdings SA
Quick Facts
- Stock Ticker: PWF on TSX
- Market Cap.: 21.96B$
- P/E: 15.86
- Forward P/E: 11.58
- EPS: $1.95
- Beta: 0.91
- Quarterly Dividends: $0.35
- Dividend Yield: 4.51%
- Dividend Payout Ratio: 71.79%
- ROE: 11.64%
- 5 Year EPS Growth Average: -3.77%
- 5 Year Dividend Growth Average: 10.17%
- 52-Week Low: $27.00
- 52-Week High: $34.23
- 52-Week Range: 55.46%
PWF Dividend Growth
PWF was a Canadian Dividend Aristocrat up until last year when it was dropped for failing to increase dividends during the year. The financial crisis delivered a set back on its ability to deliver a dividend increase. However, don’t be fool by the one year miss. Over the past 12 years, PWF increased dividends 18 times with no increases in 2009 and 2010 which means it increased dividends TWICE per year for 9 years. Some companies struggle to increase dividends once year and PWF managed to do it twice in 9 consecutive years. Even though it will take 5 years for the company to make it back in the dividend aristocrat list, you can’t overlook those numbers.
PWF Dividend Payout Ratio
The payout ratio has grown above its average recently. If you exclude the last 2 years, its average payout was 38%. Over the past 10 years, it has average at 45%. It’s in line with the banks if you want a comparison. It’s also not an agressive payout and it can allow them to invest and grow their holdings. If the current payout level continues over the next few years, it could be a sign of concern. Something to pay attention to as the company needs to invest to grow and a high payout could not be sustainable for many years.
PWF EPS Growth
Growth appears to be minimal to flat. I did a test and looked at the growth for a 5 year rolling average and it has shown growth while flattening over the past few years. Not growing earnings is a concern as it increases the payout ratio and reduces the remaining cash on hand to re-invest for growth. While the last 2 years would have seen many of its financial holdings impacted by the financial crisis, I would like to see some growth quarter after quarter over the previous quarters a year ago to show a sign of recovery.
Thoughts
I have been moving PWF up my interest list this past week. I feel it is currently attractively priced and ready to grow over the coming years. The financial industry is picking up and the life insurance industry should follow behind the financial services. The dividend yield is definitely attractive and if the company can get back to increasing dividends twice a year, you could expect a healthy dividend income. If you want more safety, its parent company, Power Corporation (TSE:POW) may be an interesting option.
Readers: Is Power Financial attractive at this price and yield?
Full Disclosure: At the time of writing I hold no position.
I was thinking about PWF, but got kinda scared ,as this is financial/insurance stock and I’m not sure if they are exposed to some kind of insurance in Japan ?
GWO, owned in part by PWF, which in turn owns a lot of other Canadian insurance companies did not drop much. Manulife got hit REALLY hard though.
Some of the industries (for example our REIT, US Health – ABT, JNJ, tobaco, liq etc) got hit pretty hard together with market even though they have no correlation to Japan earthquake at all and even sometimes vice versa (health stocks). This is why I added some ABT, bought AGNC. Also bought XMA , as Japan will soon start rebuiding itself (I don’t want to think about worst-case scenario)
ABT is a good one. BNN with their Market Call had comments on ABT that was positive. 20 years of earning growth!
PWF moved so far up my list over the last month or so, I bought some! Solid yield, another one for the long-run.
I got it for all the reasons you said above and the timing, for me at least, was good. As Bob Barker would say, “the price is right!”
So, when are you taking the plunge?
Or POW?
My Own Advisor recently posted..Heroes
Well done! Do you have enough to DRIP a share? I don’t have fund available but I am paying close attention to CPG. I may take some profits. I think I would buy PWF/POW before RCI.B at the moment.
Is it a bad idea that I am planning to make RCI.B my first purchase for my dividend portfolio? I am thinking of purchasing $500 worth, but since I just missed the ex-dividend I am not in such a rush.
Next on the list I am pondering wether doing $500 of JNJ next, but I am waiting to transfer USD into my QT account first. what do you think?
PWF, from what I can find, doesn’t have much exposure to Japan; as GWO and IGM are mostly domestic.
I got 150 shares of PWF, enough to DRIP synthetically in the TFSA. I suspect GWO or IGM will increase their dividend within another year, and I’ll be there.
I now have NO CASH in the TFSA, so RCI.B will have to wait another year. It’s an excellent price, but I never borrow to invest.
@gibor – ABT is excellent, I own it and it’s CHEAP right now! I have that one running a synthetic DRIP in my RRSP.
Have a good weekend!
Mark
My Own Advisor recently posted..Heroes
Finally my pension transfer arrived to CIBC investor edge… have to think now where to invest for a long term…
Yeah, I have enough PWF to DRIP at least one share synthetically in my TFSA.
@gibor – as far as I know, PWF has little exposure to Japan.
With that done, time to start saving all over again for 2012 and maybe RCI.B
Have a good weekend!
Mark
My Own Advisor recently posted..Heroes
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PWF/POW, currently fantastic buys, combined dividend payout over 5%. Hopefully we will see a pullback in the market again before the summer is out. I took this opportunity to average down in my SLF positive to $28/share….I’m content with that average……I also purchased CM, RY and BNS during this market turn. I also picked up 500 shares of JE at $13.50 to provide additional yield to my portfolio.
LONG:
US – ABT, JNJ, MDT, PG, XOM, PFE, GE, EXC, INTC
CAN – FTS, BCE, ENB, RY, CM, BNS, JE, SLF, PWF
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