Friday, September 6, 2013

Great-West Lifeco Inc 2

I do not own this stock Great-West Lifeco Inc. (TSX-GWO, OTC-GWLIF). I have followed this stock for some time. This stock seems to be a favorite with investors who like solid, stable, dividend paying stock. It was on Mike Higgs' list and it used to be on the dividend lists. It is part of Power Financial TSX-PWF), so you probably should not buy both.

When I look at insider trading, I find that there is some $4.2M of insider selling. All the selling is by officers of the company. Selling seems to stock options being exercised. There is no insider buying. There are a lot of officers with stock options.

Also, Power Financial (TSX-PWF) owns some 69% of this company. Paul Desmarais who also owns a great deal of Power Financial and together with Power Financial the ownership in Great-West is around 78%. The CEO has shares worth $3.9M and has options worth $16.5M. The CFO has shares worth $6.3M and has options with $13.4M.

The 5 year low, median and high median Price/Earnings per Share Ratios are 10.43, 12.29 and 15.65. The current P/E Ratio is 13.05 based on a stock price of $29.75 and 2013 EPS estimate of $2.28. This test shows that the stock price is reasonable. It is around the relative median price.

I get a Graham price of $26.31. The 10 year low, median and high median Price/Graham Price Ratios are 1.13, 1.29 and 1.44. The current P/GP Ratio is 1.13 based on a stock price of $29.75. This test shows that that the stock prices is reasonable and towards the lower end of reasonable.

The 10 year Price/Book Value per Share Ratio is 2.46. The current P/B Ratio is 2.20, a value some 90% of the 10 year ratio. This test says that the stock price is reasonable. (For this test to say the stock is cheap, the current P/B Ratio must be 80% or less than the 10 year P/B Ratio.

The 5 year median dividend yield is 5.23%. The current dividend yield is lower by over 21% at 4.13%. This puts the stock towards the high end of the reasonable range. However, the 10 year median dividend yield is 3.71%, and this is a lot lower than the 5 year median dividend yield. The 10 year median dividend yield is 11% lower than the current dividend yield and shows that the stock price is reasonable. The dividend yield has been moving up recently and that is why the current 5 year median dividend yield is rather high historically.

There are a number of analysts following this stock. The analysts' recommendations are Strong Buy, Buy and Hold. The majority of the recommendations are a Hold, so the consensus recommendation would be a Hold. The 12 month stock price is $31.60 which implies a 12 month total return of 10.35%, with 4.13% from dividends and 6.22% from capital gains.

I must say that I disagree with the Hold recommendations. This is a good company at a reasonable price. If you want to do well in this stock for the longer term, you buy when the stock is at least reasonable. I think that that the stock price is reasonable.

The Motley Fool has an interesting article about Life Insurance companies and interest rates. It talks about why increasing interest rates are good for these companies. The Investment Executive web site has an article on this company about their first quarterly results.

Insurance companies are starting to recover. If you wait for full recovery, you may not get them at a reasonable price. If you want the stock for the long term, you buy when the price is good and tuck it away in your portfolio for a while. In other words, buy now and do not wait for when everybody wants it. See my spreadsheet at gwo.htm.

This is the second of two parts. The first part was posted on Thursday, September 5, 2013 and is available here.

Great-West Lifeco is a financial services holding company with interests in the life insurance, health insurance, retirement savings, investment management and reinsurance businesses. The Corporation has operations in Canada, the United States, Europe and Asia through The Great-West Life Assurance Company, London Life Insurance Company, The Canada Life Assurance Company, Great-West Life & Annuity Insurance Company and Putnam Investments, LLC. Lifeco and are members of the Power Financial Corporation group of companies. Its web site is here Great-West Lifeco.

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. Nice analysis. My only point of disagreement is that GWO has enjoyed a nice ride over the past year and thus that much of the easy money is already gone.

  2. Dear Courgar:

    I agree with you. I think that the price is still reasonable, but the easy has been made.

  3. What is your take on the impact of the baby boomers on the insurance industry? I'm thinking that increasing life and disability insurance payouts could affect their cash flow. Is this liability already priced into the stock? Is it inconsequential?

  4. You can buy stocks at undervalued time. It’s best for you to recover your business, if you’re in a loss.

  5. To Cougar:

    Life insurance companies have been dealing with longer life expectencies almost from their inception. It is not a new problem. I do no see baby boomers causing any particular problems.

    Sorry to take so long to reply. I am just now cleaning out my emails from last month.