Non-bank Buys for Growth & Income

GREAT-WEST LIFECO INC. $34 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) is Canada’s largest insurance company, with assets under administration of $197.5 billion.

Power Corp. of Canada, through subsidiary Power Financial Corp., controls about 70% of Great-West’s shares.

In Canada, the insurance business is mature and concentrated among major insurers and the big five banks. While the strong economy has spurred demand from employers for group insurance, demand for individual policies is sluggish.

That’s why Great-West has steadily expanded its operations in the United States and Europe over the past few years. Businesses outside of Canada now account for about 55% of its income. Great-West uses hedging contracts to cut its currency risk.

Most of Great-West’s foreign purchases are in niche businesses that complement its existing operations. Economies of scale, such as merging administrative and sales personnel, should help Great-West improve the long-term profitability of these new operations.

Great-West tends to increase its dividend every six months. The current rate of $0.96 yields 2.8%. The stock trades at 14.3 times its forecast 2007 profit of $2.38 a share.

Great-West Lifeco is a buy.

IGM FINANCIAL INC. $46 (Toronto symbol IGM; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) is Canada’s largest mutual fund company, with $106.9 billion in assets under administration. Power Financial owns 55% of IGM.

In December 2006, fund sales (net of redemptions) fell 7.1% from a year earlier. That’s because Ottawa’s move to tax income trusts hurt demand for funds that focus on these securities. Many income trusts have recovered much of their initial losses, which should help fund sales in the two months before the RRSP contribution deadline of March 1, 2007.

Despite the lower sales in December, IGM’s assets under administration grew 13.7% in 2006. That’s good news, since IGM bases its fees on the size of the holdings it manages. IGM’s redemption rates are also well below the industry average.

The long-term outlook for mutual funds is bright. Baby boomers have more money to invest as they approach retirement, and many of them rely on investment firms like IGM for advice. IGM has expanded its in-house salesforce, which should help it take advantage of these trends.

Like Great-West, IGM has a long history of dividend increases. The current rate of $1.59 yields 3.5%. The company will probably earn $3.12 a share in 2007, and the stock trades at 14.7 times that figure.

IGM Financial is a buy.