CI Financial Corp

I do not own this stock (TSX-CIX). This was an income trust company and it switched back to a corporation in January 2009. As an income trust it increased its dividend substantially (around 200%). When it switched back to a corporation it lowered its dividends (around 75%). It was an income trust between 2006 and 2009.

For the year ending in December 2011, the growth in dividends is 4.7%, as this period starts before the income trust increase. As an income trust, the dividend yield was quite high. It was much lower before becoming an income trust and it is much lower after. Currently, the dividend yield is 4.4%. The 5 year median is much higher at 8%.

Part of the reason for the higher past dividend yield was due to the fact that earnings and cash flow peaked in 2007 and this company has not been able yet to get back to these peaks. In the past the Dividend Payout Ratios were very high. The 5 year medians are still quite high at 98.5% for earnings and 92% for cash flow. However, the corresponding DPRs for 2011 are expected to be 68% and 62%, respectively, which are much better.

Total return over the past 5 years is basically 0, with dividends providing some 6.5% return. That is, you broken even because of dividends paid. The total return over the past 10 years is much better at 10%, with 5.7% of this return attributable to dividends. The portion of the total return in the future that is attributable to dividends will probably be lower.

Because the financial statements are not yet available for 2011, I only have growth to the last year’s final statements of 2010. Growth over the past 5 is modest, with generally the 10 year growth being better. The growth in earnings over the past 5 and 10 years is 3.3% and 39% per year. Revenue growth is more modest, with 5 and 10 year growth at 2.8% and 6.9% per year. Cash growth is low, with 5 and 10 year growth at 5.2% and 3.4% per year. I would not expect any better growth figures for 2011.

The current Liquidity Ratio at 1.13 is better than it has been for some time, as was generally below 1.00. Part of the reason for the low Liquidity Ratio was that the company included a portion of the long term debt in current liabilities. They do have credit facilities to handle their long term debt.

The Asset/Liability Ratio has always been quite good with a current one of 2.09. The Leverage and Debt/Equity Ratios have been quite good and the current ones are 1.92 and 0.92, respectively.

The Return on Equity has always been good with a 5 year median at 20.5%. The ROE based on the comprehensive income is also good with the 5 year median also being 20.5%.

The insider trading report shows some $14.1M of insider selling, with the majority of this selling by directors. There is a very modest about of insider buying. Insider selling seems to be of options. The insider trading report shows that insider own more shares and options and this is a good thing. There are 96 institutions who own some 66% of this company. This probably includes the 36.5% owned by the Bank of Nova Scotia. Institutions have been buying and selling shares over the past 3 months and they have very modestly reduced their investment in this company.

I get 5 year median low and high Price/Earnings Ratios of 11.19 and 18.34. The current P/E Ratio of 15.4 would in between these and towards to lower ratio. I get a Graham Price of $13.35 and the current stock price of $20.60 is some 54% higher. This is a better ratio that the median one where the stock price is 69% higher than the Graham Price.

I get a 10 year median Price/Book Value ratio of 4.21 and the current one of 3.56 is some 89% lower. The only test that does not show a currently relatively reasonable stock price is the dividend yield where the current one of 4.4% is higher than the 5 year median of 8%. However, the 10 year median high dividend yield of 4.3% is probably a better test as the dividends were greatly increased while this stock was an income trust.

When I look at analysts’ recommendations, I find Strong Buy, Buy, Hold and Underperform. The consensus recommendation would be a Hold. A Buy recommendation comes with a 12 months stock price of $24. One analyst remarked on the attractive dividend yields and a dividend yield over 4% is certainly attractive for a mutual fund company.

Mutual funds tend to suffer in market downturns as investors pull out funds during such periods. One analyst felt that CI Financial funds solid performance will allow it to compete effectively in the current market. However, a couple of analysts said that they do not think this stock will go anywhere anytime soon.

I have heard to said that you are better off buying mutual fund companies rather than mutual funds because will you get a better return. I do not know if this is true or not because I have not invested in this area. However, the price of this particular stock seems reasonable, so it might be the time to invest in this stock. However, I would not expect to make much money on it over the next couple of years.

Should Bank of Nova Scotia sell their shares in this company? See Financial Post article. Barclays Capital downgraded CI Financial from overweight to equal weight. See Financial Post article.

CI Financial Corp. is a diversified wealth management firm and one of Canada’s largest investment fund companies. CI is an Independent and Canadian-owned company. This company promotes and manages mutual funds and other investment products through its wholly-owned subsidiaries of CI Investments Inc., and Assante Wealth Management. Its web site is here CI Funds. See my spreadsheet at cix.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.