Thursday, March 31, 2011

Power Corporation (POW) Dividend Analysis

Power Corporation of Canada

Power Corporation (POW) is at the top of the food chain if you consider that it owns Power Financial which in turns own Great-West LifeCo and IGM Financial Inc. When I think of Power Corporation, I tend to simplistically compare it to Berkshire Hathaway on a smaller scale, much smaller scale.

Since an image is worth a thousand words, I will let the graph below speak for itself. You can see the ownership structure where POW sits at the top.

Quick Facts

  • Stock Ticker: POW on TSX
  • Market Cap.: 11.80B$
  • P/E: 15.23
  • Forward P/E: 10.35
  • EPS: $1.89
  • Beta: 0.90
  • Quarterly Dividends: $0.29
  • Dividend Yield: 4.04%
  • Dividend Payout Ratio: 61.38%
  • ROE: 7.66%
  • 5 Year EPS Growth Average: 9.30%
  • 5 Year Dividend Growth Average: 12.63%
  • 52-Week Low: $24.98
  • 52-Week High: $31.11
  • 52-Week Range: 61.01%
The one year graph shows an up trend from earlier last year, a slow but steady trend. What I like to look at these days is how it compares to the times before the financial crash of late 2008. At that time, POW was flirting with the $40.00 range which would translate in a 40% growth plus a 4.04% dividend. The last time it traded in the current range was back in 2004. Interestingly, PWF and GWO are following a similar pattern where as IGM is more agressive.

POW 1 Year Graph

Dividend Growth

This is the graph you like to see as an investor. Over the past 10 years, the dividends have double twice only to flat line over the past couple of years. The flat line over the last 2 years saw POW being dropped from the Canadian Dividend Aristocrats list just like most financial and insurance companies. 2010 was the only year in the past 11 years where they did not raised their dividends as per my graph.

POW Dividend Growth

Dividend Payout Ratio

The payout ratio has peaked quite a bit over the past 2 years. I am hoping to see a down trend this year otherwise it would signify a slower recover by POW. Both Power Financial (PWF) and Great-West LifeCo (GWO) are exhibiting the same pattern.

POW Payout Ratio

EPS Growth

The EPS growth exhibits the same pattern as most other financial institutions. Earnings dropped over the past few years and is showing sign of growth.

POW EPS Growth


When it comes to Power Corporation, the question as an investor should be how much diversification of your holdings do you want to own. Power Corp. controls Power Financial but it only represents 66% of its assets as per the graph. The more you go up the food chain, the less risk you have but you also dilute the impact of all the investments below it. I look at it as a 3 layer investment
POW - Lower risk and slower growth

PWF - Medium risk and medium growth

GWO / IGM - Higher risk and higher growth
The current P/E is attractive and the future P/E is even more attractive. A dividend of 4% with a company like POW is really good. Many of these companies have seen price appreciation which lowers the yield in the past year. Interest has grown and many analysts are actually having 'buy' recommendations. I don't put much weight in that, but it certainly can indicate a trend.

Full Disclosure: At the time of writing, I hold no position in POW, PWF, GWO, or IGM

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