Intact Financial Corp

I do not own this stock (TSX-IFC). TD Waterhouse put out a report on good dividend paying stocks to own. This was a stock they named. I had not heard of it before, so I decided to investigate it. TD reports is at TD Waterhouse. (Note that this company used to be ING Group)

The company has only been paying dividends only since 2005. The growth in dividends over the past 5 years is 8.16%. The most recent dividend increase, at the beginning of 2011 was 8.8%. In the past they have increase their dividends at the beginning of the year. They have not yet announced their increase for 2012, but this is not due until March 2012.

The 5 year median dividend yield 3.1% and the current one is 2.6%. The Dividend Payout Ratios are good at 37.5% for earnings and 28.5% for cash flow. The potential return in 10 years’ time, if you purchase this stock today, is 5.64%.

Growth has been just ok. However, this is a general insurance company and you can expect to see more volatility in earnings and cash flows that what you would see in other insurance companies, like life insurance. The upside to this is that this stock can offer some really good entry points for buying.

Growth in Cash Flow is best with a 5 year growth at 11% per year. The worse is in earnings, which is down 9% per year over the past 5 years. Growth in both revenues and book value are mediocre. Revenue growth over past 5 years is 4.6% per year and book value growth over the past 5 years is 4.8% per year.

The Liquidity Ratio has fluctuated, but the current one at 18.05 is extremely good. On the other hand, the current Asset/Liability Ratio is mediocre at 1.27. This is lower than the 5 year median ratio of 1.37. The Leverage and Debt/Equity Ratios are a little high at 5.27 and 4.14. These are also higher than the 5 year median ratios of 3.76 and 2.76.

The Return on Equity has fluctuated, but the one for the last quarter ending September 30th is good at 12.7%. The ROE for the end of the 2010 financial year was only a bit better at 13.7%.

When I look at insider trading, I find that there has been $1.9M of insider selling and a minimal amount of insider buying. This company does not seem to have stock options for insiders, but they do have a similar long term stock incentive plan. There are a lot of insiders under this plan, and they generally have more stock incentive shares than stock shares.

There are 414 institutions that hold some 41% of the shares of this company. There has been buying and selling over the past 3 months, however, they have increased their exposure to this company by3.6% over the past 3 months.

The 5 year median high and low Price/Earnings Ratios are 11.96 and 14.94. On a relative basis, the current P/E of 10.07 would be low. (The 10 year median P/E is 10.13.) I get a current Graham Price of $60.58 and the current stock price of $56.70 is some 6.4% lower. The median and high difference between the Graham Price is the stock being 12.2% lower and 10.8% higher, respectively. This points the stock price above the median one, but below the high one, relatively.

I get a 10 year median Price/Book Value of 1.69 and a current one of 1.96. This puts the current ratio some 16% above the long term one. I get a 5 year median Dividend Yield of 3.09% and a current one of 2.61%. The low yield over the past 7 years is 2.32%.

All these tests, except for the P/E Ratio, show a reasonable, but not great stock price. Since the P/E ratio is based on earning estimates, I think the price is reasonable, but not great.

When I look at analysts’ recommendations, I find Strong Buy, Buy and Hold recommendations. The consensus would be a Buy. With this Buy recommendation comes with a 12 months stock price of $66.98. A Hold recommendation comes with a 12 month stock price of $64. Analysts agree that this is a well-run company. Many think that earnings are going to soar in 2012 and this is the reason for the low P/E Ratio.

A number of analysts mention the recent growth by 40% when they acquired a Canadian subsidiary of a French company, AXA Canada. I have not invested in any general insurance companies. I took a look at this because of the TD report I mentioned. Dividend is ok at 2.6%. I have always thought of general insurance companies a rather volatile as far as earnings go. However, if you are patient and wait for the next down turn in the general insurance industry, you could probably pick this company up cheaply.

Intact Financial Corporation (www.intactfc.com) is the largest provider of property and casualty insurance in Canada. Intact offers home, auto and business insurance through Intact Insurance, Novex Group Insurance, Belairdirect, GP Car and Home and BrokerLink. Its web site is here Metro. See my spreadsheet at ifc.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.