October 31, 2014

Canadian Dividend Stocks in Insurance

 

 

At Canadian Dividend Stock, we made a decision to separate the Canadian financial sectors into more pieces (Canadian Banks, Canadian Insurance companies, and soon, Canadian Investing companies). The reason why we have decided to segment this sector in 3 is because Canadian’s financial sectors worth more than 25% of the Canadian stock market. In addition to this, financials play a huge part in Canadian dividend stocks as they are the biggest preferred shares issuers.

 

insuranceCanadian financial industry is on each country’s radar since the economic crash in 2008. Our economic system and diversified financial sector (banks, trust and loan companies, credit unions and caisses populaires, insurance firms, securities dealers and exchanges, mutual fund companies and distributors, finance and leasing firms, as well as pension fund managers and independent financial advisors, insurance agents and brokers) has been proven to be the safest in the world. While some insurance companies went into some difficulties due to the credit default swap, Canadian problems are nothing to compare to USA insurance companies’ financial issues.

 

The insurance sector is similar to the Canadian banks environment as they are not that many players involved. They are more competition as some major US players participate one a smaller scale in Canada.

 

In order to become stronger and more diversified, most Canadian insurance companies now offers banking services (such as Solutions Banking for Power Corp (POW) and its affiliated companies (IGM, GWO and London Life or Manulife Bank from Manulife MFC). They also offer investment services specialized in mutual funds and segregated funds (through life insurance policies). Finally, Canadian insurance companies have developed tax expertise in order to offer highly specialized products and strategies including insurance products.

 

The major obstacle to face for Canadian insurance companies is definitely the actuarial calculations. Since 2008, interest rate predictions along with less liquid asset valuation have changed greatly. This could influence companies’ profitability if they don’t react quickly.

 

At Canadian Dividend Stock, we look at the following insurance companies (click on the company name to read the stock analysis):

 

Great-West Lifeco (GWO)

Sun Life Financial (SLF)

Power Corporation (POW)

Power Financial Corp (PWF)

Industrial Alliance Insurance (IAG)

Manulife Financial (MFC)

 

 

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Sun Life Financial (SLF)

 

 


 

 

Sun Life Financial (SLF) is one of Canada’s leading insurance companies.  They have an increasingly global presence and offer a broad range of, “Protection and wealth accumulation products and services” to individuals and businesses of all sizes.  Sun Life was created in 1865 and is headquartered in Toronto, Canada.  It has roughly 469 billion dollar worth of assets under their management.  Through their partners Sun Life Financial (SLF) has operations in 24 countries including the USA, United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda.  Their stock (SLF) is traded on the American and Philippine stock exchanges as well as the TSX.

 

Sun Life FinancialSun Life Financial (SLF) does the majority of its business in personal insurance and financial advice services.  Their main divisions are 1) life insurance, 2) health, medical, dental and disability insurance, 3) educational savings, and 4) investing and retirement planning services.  They also offer a multitude of financial products such as annuities and other financial security solutions.  Sun Life (SLF) touts itself as a company that has decades of experience within the industry and has products designed for every unique situation and stage of life.  They have branches and advisors for all aspects of financial management.  Plainly they are doing a good job as they were recognized as the most trusted life insurance company in Canada by the 2011 Reader’s Digest Trusted Brand consumer survey.  This was the second consecutive year that the company was recognized among 38 of its competitors.

 

Sun Life takes special pride in being a great corporate citizen.  This includes environmental considerations and social charity contributions amongst other areas.  They were named one of Canada’s best 50 corporate citizens by the Corporate Knights, and most notably was named one of the Global 100 Most Sustainable Corporations in the World.  That list is compiled from a broader record of 3,000 companies from 22 countries.  Sun Life (SLF) was the only North American insurance company on the list, and it is the fifth time in seven years it has been honoured with the award.

 

In recent news Sun Life Financial (SLF) has named Dean Connor its new CEO as current chief executive officer Donald Steward has announced his retirement in November.  Connor graduated from the Richard Ivey School of Business in 1978 and went into actuarial math and the insurance industry.  Upon being asked about the future of the company Connor pointed out the opportunity for growth in the exploding middle classes in India and China.  Financial management runs in the Connor family as his father headed up the compensation division at Stelco.

 

It is a tough time for insurance stocks of all stripes right now.  With low interest rates keeping bond yields low, and the myriad of problems plaguing the world’s equities markets, all of the major insurance providers including Sun Life Financial (SLF) have seen their share of volatility and lows.  However, this has presented opportunities with a unique buying opportunity.  In my opinion, insurance companies are like banks and almost never lose money in the long run.  As new regulations stabilize the industry, I believe that now would be a great time for value investors to snap up some great entry positions.  You can get the stock right now for the miniscule Price-to-Earnings ratio of 9.17 and will give you a sweet 5.5% dividend yield!  While the dividend hasn’t been raised in a few years, Sun Life Financial (SLF) showed a willingness to raise dividends in the past when the market was a little better.  This is an ideal stock to take advantage of the overall market recovery with.

 

Sun Life Financial (SLF) Dividend Stock Graph:

TSE SFL

Sun Life Financial (SLF) Dividend Metrics:

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
SLFSun Life Financial Inc30.184.7750.940.37909787.0354730

 

 

 

Power Financial Corp PWF

 

 

 

 

Power Financial Corporation (PWF) is the main subsidiary of the massive holding company Power Corp (POW).  Power Corp owns three main branches of businesses, of which Power Financial is by far the largest one.  While Power Financial Corporation is obviously a publically funded entity, Power Corp does own about 60-70% of the shares.  While Power Corp is based out of Montreal, Power Financial (PWF) has its headquarters in Winnipeg, MB.  It is a well-diversified company concentrated in Canada, the USA and Europe.  If you would like more information on the parent company of Power Financial Corporation, we have a company profile on Power Corp (POW) here.

 

power financial corporationPower Corporation owns a controlling share of several public entities.  Its three largest subsidiaries and the percentages of them that Power Financial (PWF) owns are Great-West Lifeco (68%), IGM Financial Inc. (57%), and Parjointco N.V. (50%).  Through these holdings Power owns a bevy of well-known financial brands such as Putnam Investments, Great-West Life & Annuity Insurance Company, The Great-West Life Assurance Company, London Life Insurance Company, The Canada Life Assurance Company, Investors Group Inc, and the Mackenzie Financial Corporation.  The structure of Power Financial (PWF) might seem a little awkward to some, but it is a way to invest in the more specific financial branch of Power Corporation (POW).  Power Corporation is a holding company that is comparable to smaller scale Berkshire Hathaway.  Power Financial is a holding company in and of itself, but one that focuses purely on financial investment opportunities.

 

In Power Financial Corp’s (PWF) most recent financial report they stated that quarterly profits were up 20% because of strong insurance and mutual fund activity.  They earned 507 million after taxes ($0.72 per share) up from 422 million ($.60 per share) in the same quarter during the proceeding year.  The rise in earnings was due to a more efficient labour structure and an 11.9% increase in revenues (revenues totalled 931 million during the period).

 

Obviously the financial sector, and especially insurance companies, have been hit hard by the recent market volatility.  The balance sheets reveal that Power Financial’s (PWF) fundamentals are solid, and that the company is profitable, even in this less-than-ideal economic climate.  Fortunately for investors, the share price of most financial companies does not reflect this reality, as most are trading at, or near their 52-week lows.  Power Financial (PWF) is trading at around 12.5 times earnings at the moment, with a ridiculous yield of 5.20%.  You may want to consider investing in either IGM Financial (IGM) or Great-West Lifeco (GWO) directly, as opposed to owning shares in the more general holding company of Power Financial Corp (PWF) or Power Corp (POW).  I prefer to be exposed to as much diversity as possible, but the same economic conditions will likely affect all of the companies in a very similar manner.  Overall, I think insurance and financials are at an excellent entry price rate at the moment.  With these low P/E ratios, and superb dividend yields (that are on the rise in many cases) they represent a great opportunity for dividend investors.

 

 

Power Financial Corporation (PWF) Dividend Stock Graph:

TSE PWF

Power Financial Corporation (PWF) Dividend Metrics:

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
PWFPower Financial Corp31.44.4666.640.35473229.2388470

 

Power Corp of Canada (POW)

 

 

 

 

 

Power Corporation of Canada (POW) is a huge conglomerate holding company that owns controlling positions of several financial, industrial, and communications companies.  Power Corporation was founded in 1925 and was originally a hydro company based out of Montreal, Quebec.  The company steadily grew and diversified into other industries as they expanded.  It has become over time a great Canadian dividend stock. When the Canadian government decided to nationalize much of Power Corp’s (POW) hydroelectric portfolio, the company was suddenly faced with a dilemma.  They had a lot of cash on hand, but the industry they had grown up in was no longer a good place to grow it.  Instead, they invested the proceeds from their first couple decades of growth into a variety of companies, with a focus on oil.  Over the last 75 years the company has grown exponentially through sound management and stable investing fundamentals.  They have become a world-class holding company.  For those of you that aren’t familiar with what the title of “holding company” refers to, it basically means a company that owns large parts of several other companies.  The most famous example would be Berkshire Hathaway (BRK.B) whose much-celebrated owner-manager is none other than Warren Buffett.  Berkshire owns a controlling interest in hundreds of other companies that are diversified across every sector of the economy, despite starting off as a basic insurance company.  This is much the same process (albeit on a smaller scale) that Power Corp of Canada (POW) has undergone.

 

Power_Corporation_of_CanadaPower Corp’s main holding is Power Financial, which it owns about two-thirds of.  Through this subsidiary, Power Corp (POW) owns notable financial companies such as Great-West Lifeco Inc. (GWO) and IGM Financial management (IGM), which of course are also publically traded companies in their own right with Power Financial (PWF) owning 68% and 57% of the companies respectively.  Through these sizeable financial holdings Power Corp indirectly owns London Life Insurance, Mackenzie Financial Corporation, and Investors Group Inc. amongst others.

 

The Globe and Mail recently did a direct comparison of Power Corp (PWO) to the more well-known Berkshire Hathaway.  Surprisingly the long-term track record of the former held up nicely to the latter.  Power Corp has yielded only 1.34% to Berkshire’s 6.98% over the past 5 years, but if you look at the 10 and 15 year comparisons, Power Corp (PWO) actually comes out on top.  This is if you include Power Corp’s substantial dividend (4.2%) which is a feature that Berkshire does not offer (Buffett prefers to reinvest all the proceeds his subsidiaries generate.

 

Power Corporation (PWO) is obviously heavily reliant on its life insurance and financial management subsidiaries.  These companies have been hit hardest by the past five years of market turmoil and this has driven down the earnings and cost of the stock.  With the recent downturn the company is trading at 12.5 times earnings.  With its substantial dividend, and long-term history of sound management that places a high value on diversification, Power Corp could easily be considered undervalued at this point, and a sound play for the future, even if they do not have Warren Buffett.

 

Power Corporation of Canada (POW) Dividend Stock Graph:

TSE POW

Power Corporation of Canada (POW) Dividend Metrics:

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
POWPower Corp of Canada28.364.0961.320.640251211.437370

 

 

 

Manulife Financial (MFC)

 

 


 

Manulife Financial (MFC) is a multinational company that handles insurance and other financial products of all kinds.  They are Canadian-based and serve clients in 22 countries through about 45,000 employees.  The countries (other then their Canadian home base) that they have large-scale operations in include the USA (through a subsidiary named “John Hancock”), Japan, and China.  One piece of unique trivia about Manulife is the fact that the first Canadian Prime Minister (John. A. Macdonald) was one of the founders of the company.

 

Manulife Financial (MFC) has been amongst the leaders in Canadian financial services for over a hundred-and-twenty years now.  It offers a full-range of insurance products including individual life insurance, group life and health coverage, property insurance, and long-term care services.  As a Canadian-based insurance company they are also fully diversified into offering pension products, annuities, and other banking options.  Manulife is one of the most internationally exposed Canadian insurance firms, and they remain committed to that strategy despite recent global financial downturns.  They pride themselves on being on the innovative edge of technology and services that they are able to offer.

 Manulife-One

Recent financial news has not been kind to the Canadian insurance companies, and it has hit Manulife especially hard.  When the economic crisis hit in 2008 Manulife (MFC) was forced to make an extremely drastic cut to their dividend.  As most dividend investors know, a cut to a company’s dividend of any kind is a pretty sure sign of distress.  It is a kind of investing ‘sacred cow’ that a company never cuts its dividend unless it is in fairly serious trouble.  Manulife cut their dividend in half, from 26 cents to an astounding 13 cents.  While the company tried to put a positive spin on the move saying that they now had the, “Flexibility to respond to both risks and opportunities from a position of strength,” there is little doubt that the cut spooked investors.  Regardless of whether or not it was a smart move for the overall operation of the company (it very well might have saved Manulife from a worse financial position), it does make it difficult for dividend investors to trust Manulife Financial (MFC) in the future.  Their market capitalization has still not recovered from the hit.

 

Things don’t look to be picking up too much for Canadian insurers, but Manulife and the others may have staunched the bleeding for the time being.  Last year the company seen billions of dollars in losses, and 2011 doesn’t appear like it will generate many profits either.  Some investors believe that with the insurance industry hurting this bad, now is the perfect time to get a piece of a company whose underlying fundamentals are still strong.  The stock is selling right now for around $14.50, and that is substantially lower than its peak of around $40 pre-2008.  Even with its reduced dividend, the stock is yielding 3.4% and as a fairly mature company one would expect Manulife Financial (MFC) to try to raise its dividend quickly as the economic recovery continues.

 

 

Manulife Financial (MFC) Dividend Stock Graph:

TSE MFC

Manulife Financial (MFC) Dividend Metrics:

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
MFCManulife Financial Corp17.253.01#VALUE!0.355265300

 

Industrial Alliance Insurance & Financial Services (IAG)


 

The Industrial Alliance Insurance & Financial Services (IAG) is the fourth largest insurance company in Canada trailing Sun Life Financial (SLF), Manulife Financial (MLF), and Great-West Lifeco (GWO).  While the company has long laboured in the shadow of these “Big 3,” it has recently emerged as a solid investment in its own right.  The cautious approach IAG has taken over the last decade has given it better returns than the companies mentioned above.  It is also expected to be the first of the Canadian insurance companies to raise its quarterly dividend (this is in especially stark contrast to Manulife which cut its dividend in half) after the financial meltdown of 2008.  IAG offers the same breadth of life and health insurance as the rest of the industry and has expanded into mutual funds, RRSPs, segrated funds, home and auto insurance in the past few years.  It has roughly $71 billion under management.  They serve over 3 million Canadians, and have a small, but quickly growing American clientele.  IAG employs almost four thousand people.

 

industrial_allianceIAG was founded in Quebec in the year 1892.  For decades the company was content to stay within the friendly confines of its Francophone bastion, but in 1980 the company started looking at expansion within Canada.  IAG is now proud to boast that a majority of its revenues actually come from outside of Quebec.  While the company’s growth has been impressive, a recent Globe and Mail article may have summed up the company best when it recently stated, “Being the 4th biggest Canadian insurance company is sort of like being the 7th biggest bank, or the 3rd largest airline, it’s very difficult to get attention.”  One of the bright points of comparison for IAG is that its relatively small international exposure and solid Canadian foothold have allowed it to weather the recent financial storms much better than its larger competitors.

 

In 2005 IAG began exploring expansion possibilities outside of Canada.  They settled on the USA as their focus.  Yvon Charest, the CEO of IAG, justified the decision by saying of the USA that, “It is so big that you can have a niche strategy – you can be active in the U.S. without competing with the giants there.”  After analyzing many USA companies, as of early 2010 IAG had still not found the right opportunity for U.S. expansion amidst the current financial turmoil.  Then, in November 2010, the company decided upon a Texas company by the name of American-Amicable Holding Inc. which they promptly purchased for $145 million.  The acquisition has a good track record and a strong balance sheet.  It is considered low-risk with an established distribution network.  IAG’s cautious approach will likely pay dividends for the company in the long term (both figuratively and literally speaking).

 

Despite IAG’s successes it is still a Canadian insurance company, which means that its stock price has been beaten up by the recent market volatility.  It is currently trading at around $36.50 per share.  This gives it a Price-to-Earnings ration of 11.81, and a yield of about 2.7%.  Even though it looks to be raising its dividend soon, IAG’s dividend ratio still trails its main competitors in the field by substantial margin.

 

 

The Industrial Alliance Insurance & Financial Services (IAG) Dividend Stock Graph:

TSE IAG

The Industrial Alliance Insurance & Financial Services (IAG) Dividend Metrics:

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
IAGIndustrial Alliance Insurance & Financial Services Inc40.422.4232.140.170388113.081110

 

 

Great-West Lifeco (GWO)

Great-West Lifeco (GWO) is a financial company based out of Winnipeg, MB.  It is the 2nd largest of the Canada’s Insurers, and is part of the three-headed oligopoly along with rivals Sun Life (SLF)  and Manulife (MFC).  They offer a broad range of services centered around life and health insurance, as well as investment management and retirement savings.  Great-West Lifeco is a key cog in the massive financial holding company of Power Corp (POW) which owns a controlling share (72.6%) of the company through its subsidiary Power Financial (PFF).  Great-West Lifeco has steadily expanded over the years, and now it includes five main subsidiaries of its own.  They are The Canada Life Assurance Company, Great-West Life & Annuity Insurance Company, The Great-West Life Assurance Company, London Life Insurance Company, and their fairly recent (2007) American purchase of Putnam Investments.  Great-West Lifeco (GWO) is an internationally diversified financial company with operations in Asia, Europe and North America.  They have roughly 500 billion dollars worth of assets under their direct control.

 

Great-West-Life-LogoWhile the insurance sector has taken a beating in recent years (even relative to the rest of the underperforming economy), things maybe looking up for Great-West Lifeco (GWO).  The company recently reported that quarterly profits rose to $526 million, which is up from $455 million a year earlier.  This is a profit of about 55 cents per common share ). This is important as the Globe and Mail reports that Great-West will likely not hike their dividend until yearly earnings per share are closer to the $2.50 mark.  Great-West Lifeco has not raised its dividend since the second quarter of 2008 (this actually compares favourably to rival Manulife financial who had to cut its dividend in half in order to keep the company in an advantageous position).  The report also stated that the formerly profit-challenged U.S. money manager Putnam Investments was one of the main reasons for the company’s uptick as they seen their sales go up to 3.4 billion.  This is a substantial gain considering they weren’t even in the black for the quarter last year.  Further encouraging news was forthcoming when Great-West (GWO) released a press briefing that stated the company had very limited exposure to the European debt contagion that is polluting the balance sheets of many other financial companies out there.  They have also moved to further limit their European holdings, and do not expect further developments in the crisis to effect their bottom line.

 

Like every stock in the Canadian insurance sector, owners of Great-West Lifeco (GWO) have seen their losses add up over the past few years.  The stock is current trading at around $23 a share, and it is definitely undervalued at that price.  For a company with 100+ years of experience and an internationally diversified record, its Price-to-Earnings ratio is a meagre 13.24, and its dividend (which again, has not been raised in 4 years) is still yielding 5.4%.  I fully believe that now is the time to lock in a solid entry position on the stock and be there for the dividend raises that will be coming in the near future.

 

Great-West Lifeco (GWO) Dividend Stock Graph:

TSE GWO

Great-West Lifeco (GWO) Dividend Metrics:

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
GWOGreat-West Lifeco Inc26.654.6170.370.23558967.9579240