The year 2015 would restore the empire coat of arms of the Power empire. Unlike other dividend payers, major Power empire companies have not raised their dividend since 2008. It’s a long break of six years for a group that had been one of the most consistent in history in growing dividends.
“This break may forget how Power companies have been among the best payers in increasing dividends,” notes Phil Hardie.
Prior to 2008, the group companies had spoiled investors. Power Financial (Tor, PWF) has increased its dividend at an annual rate of 15.6% for 20 years until 2008; his life insurer Great-West (Tor., GWO), increased its at a rate of 16%, says Hardie.
Between 1998 and 2008, Financière Power raised its dividend to twenty times, 8.5% on average. Great-West has increased its dividents 19 times, from 8.8% on average. During this decade, Corporation Power (Tor., POW) increased its dividend every year at an annual rate of 18%.
Dividends: the expected increases of 8 to 10%
If the Power empire companies resume their old habits, Great-West should move during first half-year, one quarter later followed by Financière Power. Corporation Power will follow the lead soon after.
“The return of growing dividends should revive interest in the companies in the Power group, taking into account investor appetite for resilient businesses, displaying predictable earnings and paying regular and growing dividends,” he argues.
Financière Power and Corporation Power, as well as Great-West, are undervalued by about 10% in stock based on a model that predicts an annual increase of 8 to 10% of dividends over the next twenty years, assesses the analyst. Hardie expects that Great-West dividends growing at the rate of the new cruise speed of 8 to 9% of its profits over the next two years. “The life insurer will distribute 45% of its profits in dividends, as was the case in 2006 and 2007, because it is again well capitalized,” says the analyst. Hardie expects a first increase of 4% dividend in the second quarter of 2015 for the life insurer, followed by further increases in 2016.
Since the surplus funds generated operating companies back in the Power empire through dividends, Power Financial is expected to increase its dividend by 3.5% in the third quarter of 2015, followed by increases of 4 to 5% in the first and third quarters of 2016. Mr. Hardie also reminds that currently Financière Power dividend provides a 4% yield, which is already the highest of the securities on the Toronto Stock Exchange.
As for the Great-West Life Underwriter, its title is slightly undervalued relative to other insurers on the stock market, so that its action has historically achieved a 4% valuation premium.