Great West Lifeco 2

I am finishing my review on this stock (TSX-GWO) today as I forgot to finish this off on Monday. I had been reading about how it is a good dividend growth stock. It was mentioned because of its good combination of dividend yield and dividend growth over the past 5 years. (This was in the same report as I read on Home Capital Group.)

What I noticed is that there was insider selling to the tune of $28M, mostly done in the early part of this year. Often when you get such a large amount of insider selling you can find some reason for it on the internet, but I could find nothing. The thing is you never know why anyone sells, so even though it is a lot of selling, it does not tell us much. In the past year there has been insider buying (by an officer and director) of $1.4M of this stock.

When I look at the P/E ratio, I find that the 5 year median low is 13 and the 5 year median high is 16.3. The current P/E ratio, based on estimated earnings for 2010, is 13.5. This is relatively low. Sites that base current P/E on last 12 months earnings get about the same at 13.8. For 2010, I get a Graham Price of $24.55. The current stock price of $25.68 is only 4.6% higher. The 10 year median difference is 18%, so this is relatively good.

For the Price/Book Value Ratio, I get a 10 year average of 2.62 and a current P/B ratio of 1.82. Since the current P/B ratio is only 70% of the 10 year average, this points to a good current stock price. The current dividend yield of 4.8% is quite good for this stock. The 5 year average is 3.8% and the 10 year average high is 4%. The dividend growth potential of a stock is what potential return you would get in dividends on the purchase of this stock at today’s price. If you bought this stock at today’s price, you could be earnings 10% to 12% on this investment in 10 years time.

When I look at analysts recommendations, I find they are all over the place at Strong Buy, Buy, Hold and Underperform. There are almost as many Strong Buy recommendations as there are Hold recommendations. The consensus could be a Hold. (See my site for information on analyst ratings.) Many analysts think this stock is more stable than either Manulife or Sun Life. They also think that Great-West Life might be the first to restart dividend increases.

The 12 month target price for Hold recommendations is around $28 and for the Buy recommendations is around $31, so they are not far apart. If this is a long term buy, it is probably a good time to buy. You can get a very good dividend yields at 4.8%. In this market and for insurance companies, it is hard to say when you might get capital gains. However, this would be the sort of company to buy for increasing dividends and long term capital gains.

Great-West Lifeco is a financial services holding company with interests in the life insurance, health insurance, retirement savings, investment management and reinsurance businesses. The Corporation has operations in Canada, the United States, Europe and Asia through The Great-West Life Assurance Company, London Life Insurance Company, The Canada Life Assurance Company, Great-West Life & Annuity Insurance Company and Putnam Investments, LLC. Lifeco and are members of the Power Financial Corporation group of companies. Its web site is here Great West. See my spreadsheet at gwo.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.