Good income but where is the growth?

POW - Power Corporation

Power Corporation is a diversified international management company with interests in financial services, asset management, sustainable and renewable energy companies. The company is diversified geographically and has operations in North America, Europe, and Asia. It aims to achieve long-term capital appreciation through fundamental investment analysis.

Power Corporations’ operating companies include Power Financial Corporation, Power Energy Corporation, Sagard Investment Funds, and China Asset Management. Power Corporation has a 64% economic interest in Power Financial, which is its principal asset and which in turn controls Lifeco and IGM. Power Corporation also has a 28% economic interest in China AMC and 100% in Sagard funds.

Power Financial accounted for almost 80% of Power Corporation’s net earnings in 2Q19 while Sagard Investment Funds, China AMC and other investments contributed 20%. Power Corporation has a market capitalization value of $11.4 billion and more than 31 million customer relationships.

Power Corporation has continued to develop investment platforms and operates equity investment funds since the launch of the first Sagard fund in 2002. These funds operate in principal geographies like Europe, North America, and China.

Investment Data

Revenue Growth & Market Exposure

Power Corporation has strong leadership in financial services across geographies and businesses. It has been delivering consistent earnings anchored by its core investment in Power Financial. Most of its businesses are leaders in their operating areas. For instance, China AMC is the premier asset management firm in the world’s second-largest economy.

As a world-leading financial services organization, Power Corporation is in a good position to benefit from its long-term relationships in order to achieve superior investment returns and stable cash flows. The company also makes significant investments in non-financial sector investment platforms as a part of its diversification strategy. Power Corporation has been developing its own investment platforms since the early 2000s.

Over the years, the Power group has developed extensive experience in wealth management and distribution. Leading franchises at Power Financial such as Great-West Lifeco, IGM Financial, Pargesa, specialize in insurance, asset management, wealth and retirement. The corporation is looking forward to celebrating its 100th anniversary in 2025. It continues to invest in and develop its diversified investment platforms to deliver long-term shareholder value.

The corporation’s revenues have grown at a rate of 10% CAGR in the last five years. Extensive global network and deep business relationships are Power Corp’s biggest competitive strengths. The corporation’s stake in China AMC offers the potential to diversify and accelerate earnings growth by participating in a high-growth market.

Dividends

Power Corporation paid $2.1 billion in dividends to its shareholders in the last year. It last raised its dividend by 6%. Power Corporation currently has an attractive annual dividend yield of 5.3% and a payout ratio of 75%. It has grown its dividend at a rate of 7% CAGR in the last three years. Earnings have also grown at a rate of 9% CAGR in the last five years.

Dividends paid to shareholders of Power Corporation depends upon the operating performance, profitability, and financial position of its subsidiaries and their ability to pay dividends. Through its majority stake in Power Financial, the company controls IGM Financial – one of Canada’s leading mutual fund firms, Great-West Lifeco – another large life insurer, and other insurance firms. During 2018, Great-West Lifeco increased its dividend by 6%, Power Financial increased its dividend by 5%, and Pargesa approved a 2.5% dividend increase. The companies within the Power group stand a good chance to benefit from their strategic relationship to work together on product development and mutually benefit from sub-advisory relationships.

Power Corporation’s multiple-decades long investment philosophy includes investing in companies having long-term perspectives with a prudent financial structure, and consistent earnings and dividend growth. As a result, the company is favorably placed to continue its dividend growth streak in the future.

Competition

Power Corporation’s diversified holdings and a large geographical presence help in limiting sector-specific risks and risks pertaining to specific geographies. The company competes with the likes of Brookfield Asset Management, Berkshire Hathaway, Onex Corporation, Manulife Financial Corporation, etc. Other competitors include ProAssurance, Assurant, AmTrust Financial Services, Federal National Insurance, etc.

Bottom Line

Power Corporation’s wide network of deep and long-standing relationships positions it well to continue to support the dividend in the long term. The company has been investing and developing its own investment platforms. It is well positioned to gain from its leading franchises having attractive growth profiles and a prudent approach to risk management.

Power Corporation is strategically placed to gain from growing insurance and financial markets in Canada when it rebounds (when interest rates go up). It’s heavily tied to insurance which implies a tie to interest rates if growth is what you are looking for.

POW can be a good diversification from the telecom or utility sector if you are looking for income at the current yield.

POW 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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