Going beyond the banks for high-yielding financial stocks

Going beyond the banks for high-yielding financial stocks

In our flagship Canadian advisory, The Successful Investor, we recommend that when you select investments in the financial sector, you start by looking at Canada’s big-five banks.

But we also recommend diversifying your holdings with non-bank finance stocks. Two weeks ago, we covered one such stock that more aggressive investors might consider, Home Capital (see the article here). Today we examine two conservative non-bank stocks.

GREAT-WEST LIFECO INC. (Toronto symbol GWO; www.greatwestlifeco.com) is one of Canada’s largest insurance companies, with $758.3 billion of assets under administration. It also offers mutual funds, retirement planning and wealth management. Power Financial (Toronto symbol PFC) owns 67.0% of Great-West.

The company continues to benefit from its recent $1.75-billion purchase of Irish Life Group, Ireland’s largest pension manager and life insurance provider.

If you exclude integration costs, Great-West earned $2.05 billion in 2013, including $85 million of profits from Irish Life. The latest earnings are also up 5.4% from $1.95 billion in 2012. Due to more shares outstanding, earnings per share rose 2.9%, to $2.11 from $2.05.

Revenue fell 13.6%, to $26.4 billion from $30.6 billion, mainly on fewer gains from the firm’s investment portfolio.

Great-West Lifeco’s $1.23 dividend yields 4.1%.

Canadian dividend stocks: IGM dividend yields better than 4%

IGM FINANCIAL INC. (Toronto symbol IGM; www.igmfinancial.com) is Canada’s largest independent mutual fund company. Power Financial owns 58.6% of IGM.

As of December 31, 2013, IGM had $131.8 billion of assets under management, up 9.2% from $120.7 billion at the end of 2012. The company’s fee income rises and falls with the value of the securities it manages, so its revenue and earnings gain when the price of these assets rises.

In 2013, IGM’s earnings rose 2.3%, to $763.5 million from $746.4 million in 2012. Per-share earnings gained 3.4%, to $3.02 from $2.92, on fewer shares outstanding. Revenue for the year increased 3.7%, to $2.7 billion from $2.6 billion. Sales of mutual funds rose 22.1%, while fund redemptions fell 33.7%.

The company’s $2.15 dividend yields 4.1%.

In the latest edition of The Successful Investor, we look at the impact Irish Life will have on Great-West Lifeco’s earnings in 2014. We also look at the 2014 earnings outlook for IGM Financial. We conclude with our clear buy-sell-hold advice on the stock.

(Note: If you are a current subscriber to The Successful Investor, please click here to view Pat’s recommendation in the latest issue. Be sure to log in first.)

If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question.

COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members

Many mutual fund investors are simply placed in funds by their banks or their financial advisors, with the advisor usually having a special relationship with a specific fund company. Do you actively shop for mutual funds? How do you choose between funds? Do you invest in different types of funds? Does one fund stand out for its consistently good results?

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