great-west lifeco

Investors are paying more attention to dividend yields (a company’s total annual dividends paid per share divided by the current stock price) as volatile stock markets continue to recover. Companies are responding by doing their best to maintain, or even increase, their dividend payments. That’s good news for investors, because dividends are more dependable than capital gains as a source of income. In fact, dividends typically contribute up to a third of an investor’s long-term return. Tax cuts in recent years also mean that you pay roughly the same tax on dividend income and capital gains. ...

GREAT-WEST LIFECO INC. $24 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 944.7 million; Market cap: $22.7 billion; Price-to-sales ratio: 0.7; Dividend yield: 5.1%; SI Rating: Above Average) is Canada’s largest insurance company, with $340.7 billion of assets under management. It also offers retirement planning and wealth-management services. Power Corp. owns 68.7% of Great-West’s shares. The company gets 50% of its earnings from Canada, followed by Europe (30%) and the U.S. (20%). Great-West’s revenue rose 171.4%, from $28.2 billion in 2004 to $76.5 billion in 2008. Earnings rose from $1.50 a share (or a total of $1.2 billion) in 2004 to $2.26 a share (or $2.0 billion) in 2008. ...

A high short position is no longer a particularly telling indicator, since traders and hedge funds often combine a short sale with some other transaction in stock options. Rather than having to buy the stock back in the market, for instance, short sellers may hold call options that they can exercise; that way, they buy the stock from the option seller. The short sale may say more about options trading than it does about the company’s fundamentals. Stocks like Great-West Lifeco, $23.75, symbol GWO on Toronto (Shares outstanding: 944.7 million; Market cap: $22.4 billion), and Imperial Oil, $40.84, symbol IMO on Toronto (Shares outstanding: 847.6 million; Market cap: $34.6 billion), are bound to have high short positions; they are highly liquid stocks, and there are plenty of shares available to borrow from the many institutions that own them....

These four financial companies tend to be more volatile than Canada’s big-five banks. But they are all leaders in their niche fields, and offer strong growth prospects, particularly as the economy begins to recover. We feel that conservative investors should diversify their finance-sector holdings with Great-West Lifeco and IGM Financial. More aggressive investors should consider Home Capital Group. However, we still see Dundee Corp. as a worthwhile hold. GREAT-WEST LIFECO INC. $25 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 944.3 million; Market cap: $23.6 billion; Price-to-sales ratio: 1.0; SI Rating: Above Average) is Canada’s largest insurance company, with $441.9 billion of assets under administration. Great-West also provides retirement-planning and wealth-management services. It gets about 60% of its earnings from Canada, followed by Europe (25%) and the United States (15%). Power Financial Corp. (Toronto symbol PWF) owns 68.7% of Great-West’s shares....

GREAT-WEST LIFECO INC. $25 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 944.3 million; Market cap: $23.6 billion; Price-to-sales ratio: 1.0; SI Rating: Above Average) is Canada’s largest insurance company, with $441.9 billion of assets under administration. Great-West also provides retirement-planning and wealth-management services. It gets about 60% of its earnings from Canada, followed by Europe (25%) and the United States (15%). Power Financial Corp. (Toronto symbol PWF) owns 68.7% of Great-West’s shares. In August 2007, Great-West bought Putnam Investments Trust, a leading U.S. mutual-fund company. Great-West paid just $4.2 billion, even though Putnam had $182 billion U.S. in assets under administration. That’s because Putnam was coming off a mutual-fund trading scandal that spurred a wave of investor redemptions. Putnam’s assets have since dropped to $108 billion U.S., largely because of falling stock prices. Still, the purchase gave Great-West access to Putnam’s large client base. In the three months ended June 30, 2009, Great-West’s earnings fell 26.8%, to $413 million from $564 million a year earlier. In response to last year’s financial-market turmoil, the company sold $1 billion worth of common shares to shore up its already strong balance sheet. As a result, earnings per share in the latest quarter fell 30.2%, to $0.44 from $0.63....

XL Capital, $10.72, symbol XL on New York (Shares outstanding: 342.1 million; Market cap: $3.7 billion), sells property and casualty insurance, life insurance and reinsurance coverage worldwide. In the three months ended March 31, 2009, XL Capital’s per-share earnings fell 55.4%, to $0.53 from $1.19. Excluding one-time items, the company made $0.63 a share in the latest quarter. Results remained strong in XL’s property and casualty business, but losses on its investments were significantly higher. XL is taking a number of measures to lower its risk. These mainly centre on cutting its focus on the life-insurance market and concentrating on the more stable and profitable property and casualty market. It’s also cutting back on writing longer-term insurance coverage, in order to better align its liabilities with its shorter-term investment holdings. As well, the company is actively lowering its operating expenses and cutting its workforce....

You need to look at each conglomerate on a case-by-case basis. Here are some examples: Power Financial holds majority interests in Great-West Lifeco and Investors Group. We see both Great-West and Investors Group as buys. However, Power Financial also has a large stake in Pargesa Holding S.A. of Europe. Pargesa, in turn, has large interests in a group of major European media, energy, utilities and specialty minerals companies. We don’t have the same confidence in these holdings as we do in Great-West Lifeco and Investors Group. So we think investors should stick with Great-West and Investors Group — the highest-quality segments of Power Financial’s holdings. We don’t recommend Power Financial....

GREAT-WEST LIFECO INC. $23 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 944 million; Market cap: $21.7 billion; Price-to-sales ratio: 1.0; SI Rating: Above Average) is Canada’s second-largest insurance company after Manulife Financial Corp. (Toronto symbol MFC). The company also offers wealth-management services and owns Putnam Investments, a major U.S.-mutual fund company. Power Financial Corp. (Toronto symbol PWF) owns 68.7% of Great-West’s shares. The stock market downturn cut Great-West’s assets under administration by 14.7%, to $332.9 billion as of March 31, 2009, from $390.5 billion a year earlier. Great-West’s fees rise and fall with the value of the securities it manages, so the drop hurt its earnings: In the first quarter of 2009, earnings fell 33.9%, to $326 million from $493 million a year earlier. Earnings per share dropped 41.7%, to $0.35 from $0.60, on more shares outstanding. Great-West holds $2 billion in notes and other securities issued by U.K. and European banks. If conditions worsen, the company may have to write down some of these. However, government support of these banks lowers the likelihood of a big loss....

Great-West and IGM have recovered nicely from their March lows. Despite this, both remain cheap in relation to their earnings. They also stand to expand their leading market shares as weaker competitors fold. This should let them continue paying above-average dividends. GREAT-WEST LIFECO INC. $23 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 944 million; Market cap: $21.7 billion; Price-to-sales ratio: 1.0; SI Rating: Above Average) is Canada’s second-largest insurance company after Manulife Financial Corp. (Toronto symbol MFC). The company also offers wealth-management services and owns Putnam Investments, a major U.S.-mutual fund company. Power Financial Corp. (Toronto symbol PWF) owns 68.7% of Great-West’s shares. The stock market downturn cut Great-West’s assets under administration by 14.7%, to $332.9 billion as of March 31, 2009, from $390.5 billion a year earlier. Great-West’s fees rise and fall with the value of the securities it manages, so the drop hurt its earnings: In the first quarter of 2009, earnings fell 33.9%, to $326 million from $493 million a year earlier. Earnings per share dropped 41.7%, to $0.35 from $0.60, on more shares outstanding....

We continue to recommend that all investors own at least two of Canada’s big-five banks – Bank of Montreal, Royal Bank, CIBC, TD Bank and Bank of Nova Scotia. These are key safe investments for a portfolio. But these should not be the extent of your financial holdings. It is also essential to diversity within each economic sector. Other types of financial investments, such as non-bank financial companies, should play a role in your portfolio. Non-bank financial companies include property and casualty insurance companies, mutual fund companies, wealth management companies, mortgage lenders and more. It also includes life insurance companies. The best of these can be safe investments in a well-balanced portfolio. Recently, Canadian life-insurance stocks have been held back by investor concerns that the recession will continue to hurt their profits....