Power Corp

I do not own this stock (TSX-POW), but I own a related company in Power Financial (TSX-PWF). This is a big group of companies, of which some are also on the TSX. You would not want to own separately, different companies under this group unknowingly. That is, you should check out whom or what owns companies you invest in.

I invested in Power Financial as it holds only financial companies. Others like Power Corp better as it holds more companies than just financial companies. It a much more diversified company. It all depends on what you are looking for. They are both very good companies.

As with a lot of companies, this company has not raised dividends since 2008. It would appear that they may not increase the dividend soon as the Dividend Payout Ratio for earnings over the 5 years has a median value of 61%. Prior to the recent market problems, the DPR for earnings was under 30%. The projected DPR for 2013 is at 41%. Although I must say that the DPR for Cash Flow over the past 5 years has a median value of 9%, which is much more in line with past DPR for Cash Flow.

Over the past 5 years, investors would not have made any money. The loss in capital would not have been made up in dividends, even though dividend income was at 3.7%. The loss over the past 5 years would have still be around 3.5% per year. However, investors holding this stock over the past 10 year would have made money. Total return would have probably been around 6% per year with the portion attributable to dividends being around 3.7% per year, or 65% of the return.

A large portion of this company is financial, including life insurance companies. Financial companies, especially life insurance companies have really suffered in this latest recession. They are on the mend, but it will take time.

As far as growth values go, the ones for the past 10 years are in all cases better than the ones for the past 5 years. For example, the 5 and 10 year growth in revenue per share is 4% and 6.4% per year, respectively. For cash flow the 5 and 10 year growth is 3% and 29% per year, respectively.

The Asset/Liability Ratio at 1.11 is normal for a company heavily into financial companies, as is the 5 year median Leverage and Debt/Equity Ratios at 15.07 and 12.66 respectively. Under the new IFRS accounting rules, these last two ratios jumped to 26.37 and 23.82 in the 3rd quarterly report. Unfortunately, it may take some time to sort out how the new accounting rules are going to affect how things are valued. Under the new rules some of their assets and liabilities jumped in value. This is what caused the jump in these last two ratios.

The Return on Equity Ratio for the financial year ending in 2010 is very good, as it generally is, at 14.5%. The one for the 9 months ending in September 2011 is still good, but lower, at 10.7%.

When I look at insider trading, I find insider selling at $18.3M. This selling all occurred before June 2011, when the share price was higher (around $28.00) than recent stock price (around $25). All insiders, except directors have more options than shares. There are some 128 institutions that hold some 27.5% of the shares of this company. The have bought and sold these shares over the past 3 months and marginally have fewer shares (not even 1% decrease).

When I look at analysts’ recommendations, I find Strong Buy, Buy, and Hold. The consensus would be a Hold. The Hold comes with a 12 month stock price of $26.92. A buy comes with a 12 months stock price of $28. A couple of analysts with Hold recommendations are worried about their investments in European communication and financial businesses. They feel that European outlook is not great at present.

A Buy comment was that Power Corp is a low-risk larger cap investment that is attractively valued and offer appealing dividends. Another buy says that the current stock price represents good value.

So how good is the stock price according to my spreadsheet? The 5 year median low and high Price/Earnings ratios are 10.94 and 16.41. The current one is on the low end at 10.13. The 10 year median Price/Book Value Ratio was 1.79. The current one of 1.19 is some 67% lower and points to a good price.

I get a Graham Price of $34.11 and the current stock price of $25.02 is some 62% lower. The 10 year median low between the Graham Price and stock price is the stock price lower by 20%. So this points to a good price. The current dividend yield at 4.64% is higher than the 5 year median dividend yield of 4.14% by almost 12%. Also, note that the 10 year median high dividend yield is much lower at 2.69%. Since this latest recession began, the dividend yield on this stock is much higher than the historical ones.

The problem I see with this stock as with others with Life Insurance and European properties is that the recovery of the stock could take a long time. With this stock you could collect dividends with a yield of 4.6% (much better than any current interest rates) while you wait for the stock to come back. I do not think that there is a question of this company recovery, just when it will.

T. E. Wealth picked this stock for RRSP investment in 2012. The dividend ninja review this stock recently on his site.

Power Corporation of Canada is a diversified international management and holding company with interests in companies in the financial services, communications and other business sectors in North America, Europe and Asia. Some of it subsidiary companies include Power Financial, the Pargesa group and Gesca and Square Victoria Digital Properties. Controlling shareholder of Power Corp of Canada is Paul Desmarais. They have 30.1%, but have 64.6% voting control. Its web site is here Power Corp. See my spreadsheet at pow.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.