Friday, July 19, 2013

Power Corp of Canada 2

On my other blog I am today writing Mike Weber's Canadian Dividend All-Star List ...continue...

I do not own this stock Power Corp of Canada (TSX-POW, OTC-PWCDF). I started following this stock because it was on the Dividend Achievers, the Dividend Aristocrats lists and also on Mike Higgs' list. I would not buy it because I have shares in Power Financial, which this company controls.

When I look at insider trading, I find $12.8M of insider selling and $12.7M of net insider selling. The selling is by the CFO and officers. There is a bit of insider buying by officers as officers seem to be holding on to their Deferred Share Units.

The 5 year low, median and high median Price/Earnings per Share Ratios were 10.94, 14.82 and 16.41. The current P/E Ratio is 12.17 and shows that the stock price is reasonable. The current P/E Ratio is based on a stock price of $29.34 and 2013 earnings of $2.41.

I get a Graham price of $39.24. The 10 year low, median and high median Price/Graham Price Ratios are 0.80, 0.98 and 1.17. The current P/GP Ratio is 0.75. This suggests that the current stock price of $29.34 is low.

The 10 year median Price/Book Value per Share Ratio is 1.96. The current P/B Ratio is just 1.03 a value some 53% lower. Any value at 80% or lower says the stock price is cheap.

The current dividend yield is 3.95% and the 5 year median is 4.61%. The dividend yield has been treading up and this stock has a 10 year median dividend yield of 3.10%. Generally with the current dividend yield lower than the 5 year median dividend yield, the stock price would be considered to be on the high side. However, this company has not raised their dividends since 2008. The company prior to that raised the dividend every year.

Both the P/GP Ratio test and the P/B Ratio tests suggest that this stock price is cheap and I would currently go along with these tests.

When I look at analysts' recommendations, I find Buy and Hold recommendations. Most of the recommendations are a Hold recommendation and the consensus recommendation would be a Hold. The 12 month consensus stock price is $29.90. This implies a 12 month total return of 5.86%, with 3.95% from dividends and 1.91% from capital gains.

To make good money over the longer term, you should be buying good companies when they are cheap. Yes, this can be a risk because companies are generally cheap for a reason. The main reason this company is cheap is mainly because it has insurance companies in its holdings and insurance companies are doing poorly in the current economic climate of low interest rates. However, low interest rates will not last forever.

There is a positive item on Seeking Alpha comparing this company to Berkshire Hathaway. Global News talks about Great West Life's recent purchase of Irish Life. Great West Life is part of the stable of companies controlled by Power Corp. The blogger 25000 Dividends talks about recently purchasing Power Corp.

I would not own this stock because I have stock in Power Financial. Power Financial has also been doing poorly. I have held on to my Power Financial stock because the current economic climate of lower interest rates is not going to last forever. Power Financial is controlled by Power Corp. See my spreadsheet at pow.htm.

This is the second of two parts. The first part was posted on Thursday, July 18th, 2013 and is available here.

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.

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.

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