POW Analysis: Power Corporation of Canada

Power Corporation of Canada analysis
Source: Power Corporation of Canada

I thought I would shake things up a bit on this website and share a recent buy in my portfolio and do a Power Corporation stock analysis.  I’m going to try and emulate dividend master Tom at Dividends Diversify who always does a great job of analyzing his dividend stocks, such as AT&T and Apple.  I’ll share this because it will help me keep track of the information I reviewed on this company and you may also learn a thing or two as well.  I recently (when I say recently, I usually mean sometime this year) bought a few shares of POW (Power Corporation of Canada).

People sometimes confuse PWF and POW.  PWF is Power Financial Corporation and POW is Power Corporation of Canada.  Power Corporation of Canada is more diverse than Power Financial and is comprised of 65.5% of Power Financial Corporation.

POW is a Conglomerate

The first thing I realized in this Power Corporation stock analysis is that Power Corporation of Canada is HUGE.  And it is all over the world (Europe, China, United States).  It is very diversified.  Even though it is a Canadian company, the asset allocation is a bit more International and there is less Canadian home bias.

According to Wikipedia, it all started in 1925 by a stockbrokers Arthur Nesbitt and Peter Thompson.  It was formed initially as a holding company for electrical utility companies but has since expanded to include the financial industry.  The headquarters is in Montreal.  Again, amazing companies come from Quebec, including Dollarama!

It is a third generation company, now it is run by two brothers, Paul Jr. and André, who plan to pass the helm to their own sons (who are millennials) very soon.

As you can see in the organizational chart below, Power Corporation is huge and is a holding company of many companies, one of which is a 65.5% stake in Power Financial Corporation (PWF), which in turn owns a 67.7% stake in publicly traded Great-West Lifeco (GWO.TO) Great-West LifeCo Insurance (with insurance companies in Ireland, Canada, and the United States to name a few), IGM Financial Incorporated, which owns Investors Group and Mackenzie Financial Corporation.  Power Financial Corporation also has ownership in Wealthsimple, the leading robo-advisor available in North America.  They have invested in total, $183 million in Wealthsimple, according to the annual report.

You know those Russian nesting dolls?  Well, that’s kind of what Power Corporation is.  It is the big outer shell doll.

POW Corporation Business Structure

Also, IGM Financial has invested $75 million and $40 million into Personal Capital.  The net worth tracker that every personal finance blogger in the United States seems to rave about.  It’s not available in Canada, we have Wealthica instead.

Power Financial has $848 billion in assets under management as of December 31, 2017.

In addition, Power Corporation of Canada acquired another 3.9% interest in China Asset Management for a total of 13.9% equity interest.  In addition, IGM (particularly Mackenzie Investments) owns another 13.9% interest in China AMC.  So there’s double dipping on China AMC happening.  China Asset Management’s assets under management are $168 billion Canadian dollars.  Wowza.

We’re not done yet.  Power Corporation of Canada also owns Sagard Investment Funds.  Sagard Holdings owns a 91.6% interest in IntegraMed, the largest network of assisted reproductive medicine clinics in Canada and the United States.  In 2017, Sagard Holdings and Fairfax Financial acquired the assets of Performance Sports Group, Ltd for $525 million.  They design and market sports equipment (for hockey, baseball, and lacrosse etc.) under brands that include Bauer and Easton.

Power Corporation of Canada Stock Analysis
Source: Power Corporation of Canada Annual Report

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I Don’t Own Anything Burberry but ‘I’ Did own Burberry

Well, I have a pair of hand-me-down Burberry pants for Baby GYM but I don’t own anything Burberry myself.  Power Corporation of Canada had a stake in Burberry.  In addition to that, they also have a stake in Adidas.

Power Corporation of Canada owns, through Power Financial Corporation, Pargesa Holding, which in turn has a 50% equity in Groupe Bruxelles Lambert.  Groupe Bruxelles Lambert is a Belgian holding company which invests in minerals, testing, inspection & certification, construction materials, spirits, sporting goods, chemicals and alternative investments.  GBL is the second largest holding company in Europe.

GBL sold the 6.6% stake in Burberry from its holdings recently in May and realized a capital gain, they sold it shortly after acquiring it.

Power Corporation of Canada Diversification
Source: Power Corporation of Canada

POW Dividend Yield

As of writing, the forward dividend yield is $1.53 per share.  The dividends are paid out quarterly, at $0.382 per share.

For a share price of $29.42, this represents a dividend yield of 5.20%.  This is a high dividend yield.

  • POW recently increased the dividend from $0.3585 to $0.382 in June 2018 which is an increase of 6.56%.
  • In June 2017 they increased it from $0.335 to $0.3585, an increase of 7%.
  • In June 2016 they increased the dividend from $0.31125 to $0.335, an increase of 7.6%.
  • Then in June 2015, they increased it from $0.29 to $0.31125, or an increase of 7.3%.

Prior to this though, there were no dividend increases for many years since 2008.  In 2008, there was an increase to $0.24/share from $0.20, or an increase of 21.5%.  Here is the dividend history for POW from Market Beat.

The dividend payout ratio is 51.1%, which is good.

Dividend History for POW
Source: MarketBeat

The earnings for Q1 2018 were almost double the estimated earnings.  In the first quarter, the estimated earnings were 0.73 and the actual earnings were 1.13, which is a 40% increase from expected numbers.  They are doing well for 2018.

It has an estimated price-to-book ratio of 0.8, which indicates that it is a cheap stock right now.

The P/E ratio is 8.1, which is low compared to other competitors in this industry.

Potential Growth and Risk

In this Power Corporation stock analysis, in terms of growth, Power Corporation of Canada plans to exit the newspaper business (it owns Montreal La Presse and as of writing just turned it into a not-for-profit business) and invest $10 billion into the United States in the next 5 years.  In particular, it plans to invest in the United States Pension Fund businesses.

I feel the growth towards startups like Wealthsimple‘s robo advisor and Personal Capital are a smart move.

In terms of risk, one of the biggest risks with POW is that the structure of the company and business is so complicated that it is hard to keep track as an investor.  Also, they had a long period where they were not paying dividends (from 2008 to 2015).  In addition, there is foreign exchange risk.  85% of the cash and fixed income securities are in foreign currency (mainly U.S. dollars).

Also, given that it is such a huge company (a conglomerate!) it is difficult to analyze the financials.  To be honest, I am throwing my ‘fun money’ (aka somewhat speculative money) at it because it has such a complicated structure

Summary of POW

I first added Power Corporation of Canada in January 2018 and have continued adding a bit here and there.  It is under 3% of my total portfolio.    My annual forward dividend yield from Power Corporation of Canada is just over $358.  It is a cheap stock right now.  I’m going to keep to my position as is and try not to be tempted to add any more.   Disclosure is that I am long POW (unless there’s something drastic like a dividend cut).

In my old blog, one of the most popular posts (with like hundreds of comments) was my experience with Investors’ Group and my first foray into investing in my early 20’s.  Long story short, I did not have a good experience and was unaware of the high fees associated with their mutual funds (like over 3%) and the ‘financial advisors’ tried to get me to use leverage.

I feel like I have come full circle now that I am a shareholder of Power Corporation of Canada which owns Investor’s Group.

If you can’t beat them, own them, right?

Hope you enjoyed this Power Corporation stock analysis.

Readers, do you have Power Corporation of Canada or Power Financial? 

Do you invest with Wealthsimple or Mackenzie Financial or Investor’s Group?

Disclaimer:  This blog post is meant for educational and entertainment purposes only and is not to provide investment advice. Before you make any investment decision, you should always do your own research!

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19 thoughts on “POW Analysis: Power Corporation of Canada”

  1. Hey GYM. Thanks for the shout out. I’ve got your return shout scheduled for Monday, finally. You will probably be surprised or at least amused at the post of yours I chose to highlight and take off on. How’s that for a suspenseful set up? I’m sure you will not be able to sleep now.

    Any who. Love the analysis. Your financial acumen never ceases to amaze. This is quite an interesting company. I’m not an owner, but do like their exposure in financial services as well as insurance.

    One of the things I like about diving into companies is that I always learn something new and interesting. Usually I have an ah ha moment. Did you?

    Tom

    Reply
    • @Dividends Diversify- Sweeeet! Hmm I wonder what it is! Now I will be in suspense for the whole weekend!!

      Yes, this company is very interesting. I totally had an ‘a ha’ moment! I had no idea that POW was involved with Personal Capital (Wealthsimple I knew, but not Personal Capital). They are taking Fintech by storm. Also did not know they momentarily had a small stake in Burberry.

      Reply
  2. Wow this is a very thorough analysis of POW. I did have some knowledge of this company as I invest in Greatwest Life. One thing to note, with the rise of interest rates, most financial institutions will perform a bit better as they have a sizeable fixed income portfolio.

    I actually own all three big insurance companies in Canada: GWO, MFC and SLF.

    Reply
    • @Leo- Wow! Lots of insurance companies, Leo. I just own SLF. I used to own MFC. I love my SLF actually it’s one of my best performing, 1/3 to a double bagger!

      Reply
  3. Nice analysis!

    I Purchased POW last year, and am currently dripping a couple shares a quarter. Definitely LONG on this one. Never seems to be much movement in the stock price, but it keeps earning and paying out a nice divy!

    I’ll probably double my position in POW by next year assuming it stays below 30.00.

    Reply
    • @Jordan- Cool, yay a fellow POW shareholder! Yeah, loving the divvy! I’m actually down about 5-8% but it’s no biggy.

      Reply
  4. Hi GYM, great analysis. I don’t know about this company. When first seeing POW in your post, I thought about Prisoner of War, haha. I like your idea: “If you can’t beat them, own them”. It looks this company is very aggressive in growing the business. It took some guts to invest in China, as the market is still not mature there. People follow everything but rules over there.

    Reply
    • @Helen- Haha… that’s not a very nice ticker symbol isn’t it? “People follow everything but rules over there.” <--- Helen you are so good with words. That's true, it is pretty ballsy to invest in China, but since there are so many people over there and so much wealth, it's good to get in on the boom in growth.

      Reply
  5. I almost bought PWF this week!
    Great analysis GYM. You and Tom always amaze me on how you can put all that stuff down on “paper”!

    Reply
    • @Caroline- What stopped you, Caroline (did you take pity on my measly attempts to catch up to you on your dividend income?) Hehe! Are you going to get POW instead of PWF now? 😉 This was a nice practice to force me to go through the annual report as I tend to be lazy about going through them and/or I don’t seem to get all my annual reports in the mail! #badinvestor

      Reply
      • I am a lazy investor, I don’t do enough research! I should give you a list of my stocks so you can do the analysis:) Between you and Tom, that should cover it!
        I went with more FIE instead…and maybe a few more Corus!!! I know I am a hopeless investor:(

        Reply
        • @Caroline- FIE- all Canadian financial institutions, the bedrock of Canada’s economy! I wouldn’t say you are a hopeless investor- with an annual $12,000 in dividend income (from what my memory recalls) you are doing amazing!!

          Reply
  6. I just got the “offer to purchase for cash” from Power Corporation the stocks I have. I’m pretty new to stocks. Has anyone had this happen before? Do you have to accept the offer or can you hold the stock? Just curious what other people have done and how it affected their holdings.

    Reply

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