Power Corp of Canada

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.

This company has a lot of its holdings in insurance companies. Insurance companies have not done well for a while because of low interest rates. This company was previously considered to be a dividend growth company and indeed had a great record of increasing their dividends.

However, the company has not increased their dividends since 2009. The last increase in 2008 was for only 4.4%, a much lower increase rate that this company has been giving. Still the 10 year dividend growth is at 16.6% and the 5 year dividend growth is at 4.8%. Some analysts do expect perhaps a small dividend increase this year or next. Most do not. The dividend yield has increased as has occurred on other insurance stock. Dividend yield used to be at or below 2%. The current dividend yield is 3.95%.

The problem is that the Dividend Payout Ratio for earnings has gone from south of 30% to north of 60%. However, the DPR for cash flow has not really increased and the 5 year median DPR for cash flow is currently around 9.8%.

This stock, as well as the stock market has been moving higher lately. It looks like we are going to have a summer rally this year. However, the returns on this stock have not been great lately. The 5 year total return to the end of last year was a 5.3% per year loss. The dividend portion of the return was 3.45% per year and the capital loss was at 8.76% per year. However, over 10 years the total return was 7.64%, with 4.14% per year from dividends and 3.5% per year in capital gains.

Shares have increased marginally (way less than 1% per year) over the past 5 and 10 years. Shares have increased due to stock options. Growth has not been great lately for this stock and the 10 year growth figures are better than the 5 year growth figures.

Revenue per Share is up by 5.5% per year and 6.9% per year over the past 5 and 10 years when looking at 5 year running averages. Earnings per Share is down by 6.8% per year if looking at 5 year running averages, but up 3.8% per year over the past 10 years. Cash Flow per Share is up by 5.6% and 17.6% per year when looking at 5 year running averages over the past 5 and 10 years.

When looking at Return on Equity, this has been good lately and was only really low in 2008 and 2009. The ROE for the financial year ending in December 2012 was 27.2%. The ROE for comprehensive income was fairly close at 25.5% and only 6% different.

The Liquidity Ratio is not that important on financial firms and this firm's liquidity Ratio has always been quite good with a 5 year median at 1.75. A more important ratio is the Debt Ratio and this is good for a financial firm coming in a 1.11. The Leverage and Debt/Equity Ratios got quite high over the past few years and quite high for the financial year ending in 2012 coming in at 26.90 and 24.25. They are much better and more in line with other financial firms for the 1st quarter of 2013 coming in at 19.65 and 17.92.

This stock has not done that well over the most recent financial difficulties. However, when the economic climate changes, I am sure that it will become, once again, a dividend growth company. See my spreadsheet at pow.htm.

This is the first of two parts. Second part will be posted on Friday, July 19th, 2013 and will be 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.