Friday, June 8, 2018

Power Corp of Canada

Sound bite for Twitter and StockTwits is: Dividend Growth Financial. It is coming up cheap on my tests. It should do better with rising interest rates. If this is a stock you want to buy, now is the time. See my spreadsheet on Power Corp of Canada .

I do not own this stock of 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. It is a stock that I notice has been recommended lately as good value (October 2008). I would not buy it because I have shares in Power Financial, which this company controls.

There was no dividend increases from 2009 to 2014 inclusive. This is because of problems coming out of the last recession. They have increased their dividend some 21 times over the past 29 years. Dividend yields had been low (below 2%) to moderate (around 2%) until 2008. Since then they have been high (in 3%, 4% and 5% range).

Dividends yields have been moderate to good with dividend growth low to moderate. The historical, 5 and 10 year median dividend yields are 2.31%, 4.00% and 4.35%. The dividend growth for the past 5 and 10 year periods is below 5% per year. The dividend growth for the 15 to 29 year periods is above 8%. See the chart below.

The Dividend Payout Ratio for 2017 is 51% with 5 year coverage at 46%. The DPR for CFPS for 2017 is 9% with 5 year coverage also at 9%. So it looks like the company can afford their dividends.

There are some economists that think that the next bear market will be very hard on companies with lots of debt. So I thought I would speak to this subject in my review. The Leverage and Debt/Equity Ratio are fine at 12.10 and 11.10 for its sector. For financial, the Liquidity Ratio is not important although. It is fine at 1.64. The Debt Ratio is fine at 1.09 for a financial stock.

The Long Term Debt/Market Cap Ratio may look high at 11.26 because generally you want it less than 1.00. However, since this is a financial what is important is that the investments cover the long term debt. Long Term Debt is some 92% of investments, so this is fine.

The Total Return per year is show below for years of 5 to 30. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See charts below.

This company has a lot of subsidiaries that are in Life Insurance. Life Insurance companies have had a difficult time with the very low interest rates from the last recession. That is the reason for the very low return over the past 10 years. Life Insurance companies will do better in a rising interest rate environment.

Years Div. Gth Tot Ret Cap Gain Div.
5 3.99% 9.46% 4.99% 4.47%
10 4.35% 1.15% -2.13% 3.28%
15 8.82% 8.12% 3.99% 4.13%
20 10.12% 8.41% 4.75% 3.66%
25 11.76% 13.60% 8.86% 4.74%
30 10.65% 11.28% 7.64% 3.64%

The 5 year low, median and high median Price/Earnings per Share Ratios are 10.38, 11.22 and 12.05. The corresponding 10 year ratios are 10.82, 13.12 and 14.33. The historical ratios are 11.26, 12.95 and 14.81. The current P/E Ratio is 9.07 based on 2017 EPS estimate of $3.36 and a stock price of $30.48. This stock price testing suggests that the stock price is relatively cheap.

I get a Graham Price of $47.97. The 10 year low, median and high median Price/Graham Price Ratios are 0.72, 0.90 and 1.01. The current P/GP Ratio 0.64 based on a stock price of $30.48. This stock price testing suggests that the stock price is relatively cheap.

I get a 10 year median Price/Book Value per Share of 1.26. The current P/B Ratio is 1.00 based on Book Value of $14,145M, Book Value per Share of $30.44 and a stock price of $30.48. The current P/B Ratio is some 21% below the 10 year ratio. This stock price testing suggests that the stock price is relatively cheap. On an absolute basis a stock is considered cheap if selling around a ratio of 1.00. In fact a ratio of 1.50 or below is considered good.

I get an historical median dividend yield of 2.31%. The current dividend yield is 5.01% based on dividends of $1.53 and a stock price of $30.48. The current dividend yield is some 117% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively cheap.

The 10 year median Price/Sales (Revenue) Ratio is 0.35. The current P/S Ratio is 0.27 based on 2018 Revenue estimate of $51,747M, Revenue per Share of $111.35 and a stock price of $30.48. The current ratio is some 21% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.

When I look at analysts’ recommendations I find Buy (1) and Hold (6) recommendations. The consensus recommendation would be a hold. The 12 month stock price is $33.50. This implies a total return of 14.92% with 9.91% from capital gains and 5.01% from dividends. These calculations are based on a current stock price of $30.48.

Will Ashworth of Motley Fool thinks you should not pass up investing in the stock. (Note: that sometimes you need to use your browsers arrows to back out and back into a Motley Fool article to get the full article.) Ross Marowits of the Canadian Press writing in the Financial Post says that this company is prepared to invest $10B in the US over the next 5 years. An article by the Canadian Press in The Reminder talks about Power Financial Corp’s, a subsidiary of Power Corp, investment in Wealth Simply a FinTech. See what analysts are saying about this company on Stock Chase . They do not find this company very exciting.

Power Corporation of Canada is a holding company with interests in financial services, communications, and other business sectors. It operates through its subsidiaries and has a business presence worldwide. Its web site is here Power Corp of Canada .

The last stock I wrote about was about was Lassonde Industries (TSX-LAS.A, OTC-LSDAF)... learn more. The next stock I will write about will be Waste Connections Inc. (TSX-WCN, NYSE-WCN)... learn more on Monday, June 11, 2018 around 5 pm.

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. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.

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