Thursday, March 10, 2011

Power Financial Corporation (PWF) Dividend Analysis

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%
  • 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 Stock Chart

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 Growth

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 Dividend Payout Ratio

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.

PWF EPS Growth


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.

Readers: Is Power Financial attractive at this price and yield?

Full Disclosure: At the time of writing I hold no position.

Disclaimer: The material presented should not be considered a recommendation. You should always do your own research and reach your own conclusion.
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