Friday, May 16, 2014

Power Financial Corp.

I own this stock of Power Financial Corp. (TSX-PWF, OTC-POFNF). When I sold my CIBC bond I had money to spend. This was a stock on my hit list and was selling at a reasonable price. This stock was on Mike Higgs' dividend growth stocks and that is why I started a spreadsheet to investigate this stock in the first place.

Until the recent financial crisis this company had a very good history of raising dividends. Dividends were good (2% to4% range) and increases were also good (with a median of 18% per year). However, since the financial crisis, dividend increases have stopped. I expect that they will restart again, but it is hard to say when. Some analysts think that they will restart soon, but most do not. I would think that we need to have interest rates increasing before this will happen.

The last dividend increase was in 2009. Dividend yields have been historically high lately (in the 4% to 5% range). The current dividend yield is 4.46% and the 5 year median dividend yield is 5.05%.

The Dividend Payout Ratios have been higher lately than they have been historically. Before the recent financial crisis the DPR for EPS was around a median of 35% and for CFPS was around a median of 19%. The 5 year median DPR for EPS is at 51% and for CFPS is 16%. The DPR for EPS for 2013 was 53% and for CFPS was at 16%.

My total return on this stock is 8.62% per year with 4.5% per year from capital gains and 4.12% per year from dividends. The total return on this stock over the past 5 and 10 years is at 6.32% and 4.51% per year. The portion of these returns attributable to capital gains was at 1.98% and 0.69% per year. The portion of these returns attributable to dividends is at 4.34% and 3.81% per year.

The outstanding shares have increased only marginally over the past 5 and 10 years. Outstanding shares have increased due to Stock Options and Employee Stock Purchase Plan. The company has done better in Revenue, Earnings and Cash Flow over the past 10 years than over the past 5 years.

Using the 5 year running averages, Revenue per share is up by 1.7% and 6.5% per year over the past 5 and 10 years. Using 5 year running averages EPS is down by 1% and up by 4% per year over the past 5 and 10 years. Using 5 year running averages cash flow per share is up by 5.7% and 16.5% per year over the past 5 and 10 years. As you can see, the CFPS growth is the best.

The first quarter was rather good for this company. If you compare the last 12 months to the end of March 2014 to the 12 month period to the end of 2013, Revenue is up 8.4%, EPS is up by 4.2% and Cash Flow is up by 12.3%. This is a good start to the year and values are going in the direction that the analysts had expected.

The Return on Equity was over 10% each year until the latest financial crisis. Since then it has been below 10%. The ROE for 2013 is at 6.9% and the 5 year median ROE is also at 6.9%. The ROE is better on Comprehensive Income in 2013 than that on Net Income. Here is ROE is 10.7%, a good showing. However, the 5 year median ROE on comprehensive income is low at just 6%.

The Liquidity Ratio is good on this stock at 2.73, but this ratio is not very important for financial stocks. The Debt Ratio is at 1.09 and is fine for a financial stock as are the Leverage and Debt/Equity Ratios at 12.61 and 11.61.

I have a fair bit of my portfolio in insurance companies and I expect them to recover. I am a long term investor, so I do not change my base stock much. This company is recovering from the last financial crisis, but we will need to see better or should I say more normal interest rates for a full recovery. Currently this stock is doing what I expect. See my spreadsheet at pwf.htm.

This is the first of two parts. The second part will be posted on Monday, May 20, 2014 and will be available here. The first part talks about the stock and the second part talks about the stock price.

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. Its web site is here Power Financial.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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