Power Corporation (POW) Business Description:
Power Corporation is a holding company. It owns interests in several other companies such as Investors Group (IGM), Great West (GWO) and London Life (Freedom 55 anyone?). Their primary core of business is investments, financial planning and life insurance. It also owns interests in communications and media through Square Victoria Communication Group.
There aren’t many holding companies in Canada and Power Corporation is most probably the biggest with a market capitalization of $12.33B with participation in several important companies.
POW Stock Graph
POW Dividend Growth Graph
POW’s dividend payouts have been relatively flat for the past 5 years. In fact, the latest dividend increase was made in 2008 when the quarterly dividend went from $0.24 to $0.29 per share. We can understand that their main business (mutual funds and life insurance) has been severely hit in 2008. A quick look at their earnings per share will show us why the stock hasn’t increased its dividend:
A big part of the insurance companies’ values obviously lies within their assets used to back the insurance policy payouts. For insurance companies; it’s all about actuarial valuation of their insurance payouts vs their premiums and assets under management. The recent interest rate collapse hurt this business as the actuarial calculations all went bust. POW wasn’t spared from this event and this is why you can see how difficult the following years were.
The Company Ratios and Financial Info:
|Ticker||POW CN Equity|
|Name||Power Corp of Canada|
|Current Dividend Yield||4.3|
|5 year Dividend Growth||4.72|
|1 year Dividend Growth||0|
|Sales Growth (1 year)||0.28|
|Sales Growth (5 year)||16.18|
|EPS growth (5 year)||-8.87|
|P/E Next Year||11.21|
|Return on Equity||11.9|
|Debt to Capital Ratio||0.54|
POW Stock Technical Analysis
POW is currently trading on a strong uptrend. It might be a good time to explore this stock. Click here to get a free stock analysis report on POW.
Power Corporation Upcoming opportunities and dangers:
Power Corporation is an important player in the financial services arena in Canada. Notably, Investors Group is the biggest mutual fund company in Canada. It is a well-diversified dividend paying machine. EPS was down during the economic crisis (from 2008 to 2010) but POW show stronger metrics since 2011.
If interest rates continue to stay low (which will probably be the case), the life insurance (Great West, London Life, Canada Life) segment of Power may continue to hurt. As the investment market is shifting towards low cost ETFs, Investors’ mutual funds and its high MERs may also be at risk. However, they are doing a good job at selling financial planning to their clients in exchange for higher MERs on funds.
Now that insurance companies master a little bit better the “new” economic environment, we can bet that their future returns will be better. Private investments, infrastructure along with other alternative investments are taking more space in their asset allocation and this may be the way to avoid volatility and still earn decent interest payments.
Final Thoughts on Power Corporation
If I had to choose between POW and IGM, I would definitely take the first stock. Power shows more diversification and owns a good part of IGM nonetheless. This enables the company to play on both the insurance and mutual fund industries and operate one of the most admired Canadian conglomerates.
The reason why I picked POW in my Best 2013 dividend stock portfolio was based on my expectation of stability both in terms of value and dividend payout. You can’t expect to hit a homerun with each selection and this stock is a good “stabilizer” for me. At over 4% dividend yield, this is definitely a great alternative to bonds!
Disclaimer: I do not hold shares of POW