Great West Lifeco

I am reviewing this stock (TSX-GWO) today as I was just 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 on Home Capital Group.) I do not own this stock as I have Power Financial. Power Financial owes 65% of this company.

First, I want to talk about dividends, my favorite subject when talking about stocks. Dividend growth up until 2008 was very good, averaging about 16% per year. Dividends only grew 2.5% in 2009 and they have not raised the dividends for 2010. The declared dividend for December 2010 is also at the same rate. Probably because a lot of financials, like insurance companies, were hit hard by the latest recession.

Even though the yield on this stock has been higher in 2008 and 2009, the current yield of 4.7% is high by historical standards for this stock with a 10 year average high of 3.9%. The dividends have grown at the rate of 12.4% and 17% per year for the past 5 and 10 years to the end of 2009. However if you look at the 5 year growth to date it is lower at 8.7% per year. The company has not said when they will raise the dividends next yet.

If you look at the dividend growth potential of this stock, the dividend would only have to grow at the average rate of 7.7% a year over the next 10 years for you to have a 10% return, in 10 years time on the money you invested today. This is probably not asking too much from this stock as the company and Power Corp has a habit of very nice dividend increases. Sure, we will get another recession, but it will not be occur because of the same factors as this one and therefore will not affect insurance companies in the same way.

You might be interested in this link to Money Sense. Money Sense rated the top 100 Canadian Dividend Paying stocks and gave this stock a solid rating of “C” as of September 10, 2010. Money Sense was looking for stocks that provided generous income at reasonable prices. People have different ideas about what makes a good dividend paying stock. I found this stock on a much shorter list of good dividend paying stocks than the one from Money Sense, which includes some 100 stocks.

The growth figures for this stock are generally not bad. Where it falls down is in two categories. The first is the total return. The 5 year total return is around 4%, which is almost all dividend returns. The 10 year total return is much better at 13%, with over 4% of this return in dividends. This is the sort of split you want between capital gains and dividends for a long term stock investment.

The other growth figures that are not so great are in earnings. The 5 year growth in earnings is 0% per year. The 10 year growth is better at 9.2% per year. However, analysts feel that earnings will grow 10% this year and by 17% in 2011. It is expected that the company will fully recover its earnings by 2011.

I will not be buying this stock as I already have Power Financial. However, it has often been recommended as a great dividend paying stock, so I follow it and will continue to do so. Tomorrow, I will look at the current price for value and see what analysts are saying about this stock.

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.