Tuesday, February 19, 2013

Intact Financial Corp

On my other blog I am today writing about Adjusting my RRSP Account...continue...

I do not own this stock of Intact Financial Corp (TSX-IFC, OTC-IFCZF). TD Waterhouse put out a report In November 2011 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. (Note that this company used to be ING Group)

First of all I will discuss dividends. The have a decent dividend of 2.75% and a 5 year median dividend yield of 3.1%. The can afford the dividends as the 5 year median Dividend Payout Ratios are 37% for earnings and 25% for cash flow. The DPRs for the 2012 financial year are the same.

Dividend growth is good as the 5 year and 7 year growth is 13.7% and 8.2%. The first increase was almost 60%, so I would suspect that the growth would be around 8% in the future. The last increase was just announced for the first quarter of 2013 and increase was for 10%.

The current Liquidity Ratio is very good at 1.93. The other debt ratios are not so good, but it is a financial institution. The Current Debt Ratio is at 1.33 and current Leverage and Debt/Equity Ratios are at 4.50 and 3.39. So they are ok.

As far as growth goes, Revenue has the best growth with Revenue growth at 9.5% and 9.8% per year over the past 5 and 9 years. Revenue per Share has grown at 8% and 7.5% per year. Earnings have been erratic, but analysts expect better earnings over the next couple of years. The Return on Equity has been good with a 5 year median at 12.1% and the 5 year median ROE on comprehensive income slightly higher at 12.7%

When I look at analysts' recommendations I find Strong Buy, Buy and Hold. The consensus would be a Buy (as most of the recommendations are here). (See my site for information on analyst ratings.) The 12 months stock price is $74.10. This implies a return of 18.3% with 2.5% from dividends and 15.8% from capital gains.

On the insider trading report there is some insider buying ($0.3M) and some insider selling ($1M). Insider selling seems to be involving stock options. There are not a lot of outstanding stock options. The CEO owns $5.9M in shares and has options of $4.6M.

When I look at the relative price, the Price/Earnings Ratio at 10.46 shows a relatively low price (5 year median P/E low and high being 12.90 and 15.00). The Price/Graham Price is similar. The Price/Book Value shows a relatively average price with the current P/B Ratio (1.94) being 5% higher than the 10 year median ratio (1.84).

However, the dividend yield shows relative price is elevated with the current dividend yield lower than the 5 year median yield by almost 11% (2.75% to 3.1%). If you get mixed results and there is no reason not to go with the dividend yield test, I would go with the dividend yield test which suggests that stock price is a bit on the high side.

The management of this company is well thought of. It would be a long term investment because there is volatility in property and casualty insurance companies, but these companies can make money for shareholders over the long term. They are getting a good track record for annual increases in dividends. (Dividends have been raised every year since they started 8 years ago.)

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 Intact. 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 or StockTwits.

1 comment:

  1. I'm impressed, I must say. Very rarely do I come across a blog that's both informative and entertaining, and let me tell you, you've hit the nail on the head.