Power Corporation (POW) is at the top of the food chain if you consider that it owns Power Financial which in turns owns Great-West LifeCo and IGM Financial Inc. When I think of Power Corporation, I tend to simplistically compare it to Berkshire Hathaway on a smaller scale, much smaller scale.
Since an image is worth a thousand words, I will let the graph below speak for itself. You can see the ownership structure where POW sits at the top.
- Stock Ticker: TSE:POW
- Market Cap.: 11.80B$
- P/E: 15.23
- Forward P/E: 10.35
- EPS: $1.89
- Beta: 0.90
- Quarterly Dividends: $0.29
- Dividend Yield: 4.04%
- Dividend Payout Ratio: 61.38%
- ROE: 7.66%
- 5 Year EPS Growth Average: 9.30%
- 5 Year Dividend Growth Average: 12.63%
- 52-Week Low: $24.98
- 52-Week High: $31.11
- 52-Week Range: 61.01%
The one year graph shows an up trend from earlier last year, a slow but steady trend. What I like to look at these days is how it compares to the times before the financial crash of late 2008. At that time, POW was flirting with the $40.00 range which would translate in a 40% growth plus a 4.04% dividend. The last time it traded in the current range was back in 2004. Interestingly, PWF and GWO are following a similar pattern where as IGM is more aggressive.
This is the graph you like to see as an investor. Over the past 10 years, the dividends have double twice only to flatline over the past couple of years. The flat line over the last 2 years saw POW being dropped from the Canadian Dividend Aristocrats list just like most financial and insurance companies. 2010 was the only year in the past 11 years where they did not raise their dividends as per my graph.
Dividend Payout Ratio
The payout ratio has peaked quite a bit over the past 2 years. I am hoping to see a downtrend this year otherwise it would signify a slower recover by POW. Both Power Financial (PWF) and Great-West LifeCo (GWO) are exhibiting the same pattern.
The EPS growth exhibits the same pattern as most other financial institutions. Earnings dropped over the past few years and is showing sign of growth.
When it comes to Power Corporation, the question as an investor should be how much diversification of your holdings do you want to own. Power Corp. controls Power Financial but it only represents 66% of its assets as per the graph. The more you go up the food chain, the less risk you have but you also dilute the impact of all the investments below it. I look at it as a 3 layer investment
POW – Lower risk and slower growth
PWF – Medium risk and medium growth
GWO / IGM – Higher risk and higher growth
The current P/E is attractive and the future P/E is even more attractive. A dividend of 4% with a company like POW is really good. Many of these companies have seen price appreciation which lowers the yield in the past year. Interest has grown and many analysts are actually having ‘buy’ recommendations. I don’t put much weight in that, but it certainly can indicate a trend.
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.