Wednesday, May 9, 2012

Power Financial Corp

I have updated my investing comments blog today about the idea of selling in May. See blog 3.

I own this stock of Power Financial Corp (TSX-PWF). I first bought this stock in 2001. I then bought some more in 2004 and 2011. I have made a total return on this stock of 7.65% per year. Dividend return is 4.19% and capital gain is 3.46%. Dividends make up some 54.8% of my returns. My long term expectations for this stock are earning around 4% dividends and 4% capital gains.

Until recently, this company had a great record of increasing dividends. The growth in dividends over the past 5 and 10 years is 7% and 12.3% per year, respectively. The recent recession has been hard on insurance companies and this company owns lots of insurance companies. They have not increased their dividends since 2009.

The 5 year median Dividend Payout Ratios for this company is 67% and 18% for earnings and cash flow. The DPRs for 2011 were 58% and 18% for earnings and cash flows. However, if we based the DPR on cash flow excluding changes in working capital (or changes in current assets and current liabilities), the 5 year median DPRs become 16% and the 2011 become 25%.

The DPRs are good. Analysts talk about the dividend being safe. No one is currently talking about the company increasing dividends at this point in time. The company is proud of their history of dividend payments, but they also do not say when they may resume increasing them.

Total return has not been great over the past few years. The 5 year return is negative with a decline of 3% per year. The dividend return over the past 5 years has been at the rate of 4.2% per year. The 10 year total returns are better at 7.5% with dividends at 4.5% and capital gain being 3%. Over the last 10 years, dividends have made up some 60% of the total returns.

When you look at growth, the company has done better in the last 10 year period than in the last 5 year period. Revenue per share is up 1.6% and 6% per year. Cash flow is down almost 3.5% per year over the past 5 years, but it is up 10% per year over the past 10 years. Book Value is up 2.7% and 10% per year over the past 5 and 10 years respectively.

The debt ratios are fine for an insurance company. The current Liquidity Ratio 1.25. This is not great, but the Debt Ratio is more important. The Debt Ratio is 1.10, which is ok but not great. It is lower than the 5 year median ratio of 1.18. Both the current Leverage and Debt/Equity Ratio are a bit high at 21.94 and 19.96 and these are higher than the company’s 5 year median of 12.91 and 11.12.

The Return on Equity is quite good for 2011 at 15%. The 5 year median ROE is 14.2%. The ROE basic on comprehensive income attributable to common shares is 14.5%. This ROE has a 5 year ratio of 10.6%.

Currently this stock is 5% of my portfolio. My portfolio is heavily into financials. I will hold on to the shares I have. I expect that this stock will fully recover as other insurance companies will.

This company is a holding and management company. Its operations provide a range of individual and corporate financial and fiduciary services in North America and Europe. It holds interest in the following companies: Great-West Lifeco, Great-West Life, London Life, Canada Life, Great-West Life & Annuity, Putnam Investments, IGM Financial, Investors Group Mackenzie Financial, and Pargesa Group. 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 Financial. See my spreadsheet at pwf.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.

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