A Balance of Growth and Income for IAG

IAG - Industrial Alliance
Industrial Alliance is a leading insurance and wealth management company in Canada. The company manages more than $180 billion in assets and over 4 million client accounts.

Industrial Alliance offers a broad range of savings, retirement, group benefits, defined contribution and benefit plans, insured annuities, etc. to a diversified base of clients comprising of individuals, companies, and organizations. It also distributes creditor insurance products, car loan financing, and property & casualty products through a Canada wide distribution network. The company derives 97% of its earnings from Canada and 3% from the US.

Industrial Alliance operates through individual insurance (15% of 2018 revenues), individual wealth management (40%), group insurance (18%), group savings and retirement (18%), U.S. operations (5%) and other (4%) divisions.

Investment Data

Revenue Growth & Market Exposure

With more than a century old existence, Industrial Alliance has developed the necessary expertise and a portfolio of products and solutions to cater to the diverse financial needs of its clients. Owing to its financial stability, Industrial Alliance receives high credit ratings and currently has more than four million clients. The company helps clients make informed decisions regarding insurance and finances at the right stage of their lives. Industrial Alliance reaches its clients through an extensive Canada-wide multi-channel distribution network consisting of more than 25,000 representatives.

Industrial Alliance’ assets have grown at 13% CAGR over the last decade. The company manages nearly $170 billion in assets comprising of general funds, segregated funds, mutual funds, and others. The company has been expanding organically as well as through acquisitions into related businesses and geographies. Industrial Alliance’ HollisWealth integration is now complete and the company is now expecting to optimize its affiliated distribution networks. The integration has increased the company’s assets by more than 30%.

As one of the largest insurance and wealth management groups in Canada, Industrial Alliance is well-positioned to benefit from the growing financial security needs of people. Today, people tend to live longer and need to make sure that their futures are financially secured. With the strength of its distribution network and wide range of products, Industrial Alliance should benefit from this trend. Industrial Alliance has further created a holding company (iA Financial Corporation) for the group which is expected to grant more flexibility to execute on its growth strategy.

Dividends

Industrial Alliance is a Canadian Dividend Aristocrat with a dividend yield of 3.3%. It has delivered annual dividend increases averaging at 10% CAGR per annum over the last five years. The company last raised its dividend by more than 13% (on an annual basis) and has a very reasonable payout ratio of 31% at present. Industrial Alliance’ dividend growth rate (compounded annually) has been increasing at an impressive pace.

Industrial Alliance witnessed double-digit growth in net income and EPS during the last year. The company is targeting to grow its EPS by at least 10% annually till 2022 which should comfortably support its dividend growth in the high single-digit rate going forward. Industrial Alliance has a history of maintaining a reasonable payout ratio, sitting near 34% since the last decade. A low payout ratio further indicates significant room for future dividend growth. The company has also indicated that share buyback will continue to be a component of its capital allocation this year.

Industrial Alliances’ financial strength and diversified operations provide ample cash flow to sustain operations without the need for external funds. The company has compounded its earnings growth at a rate of 21% over the last decade and is witnessing solid momentum across its US divisions, segregated fund sales in Canada, and retail insurance sales.

Given its large and diverse footprint in some of the world’s leading markets, Industrial Alliance should gain from the growing demand for retirement and asset management solutions. The company’s US operations and individual wealth are its big growth drivers demonstrating positive earnings trajectory. Industrial Alliance also maintains a solid market share in the individual insurance. A strong business model and financial stability have helped the company score strong credit ratings from major rating agencies.

Competition

Industrial Alliance competes with leading Canadian insurance companies like Manulife Financial Corporation, Sun-Life Financials, Great-West Lifeco, and Intact Financial.

The company faces intense competition from insurance companies, banks, asset managers, mutual fund companies, financial planners and other service providers. Industrial Alliance also faces constant headwinds from rapidly evolving technology, which has led to the emergence of several new entrants who use new and low-cost digital-based business models such as insurtechs and robo-advisors. A huge distribution network, an extensive geographic presence and a wide range of financial products are Industrial Alliance’ key strengths.

Bottom Line

Industrial Alliance’ growth has been remarkable since it went public. It has grown its wealth management business, expanded its operations in Canada and the U.S. and has succeeded in becoming a multi-faceted financial services organization, over the years. Industrial Alliance is expecting to drive EPS growth on the back of its recent acquisitions in Canada and the US. Its acquisition of HollisWealth has made it one of the largest non-bank wealth management advisory firms in Canada. The company should continue its dividend growth streak in the future.

IAG vs Indexes

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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