Stock Analysis: Canadian Dividend Stock IGM Financial
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One thing I have not been doing on this blog has been showing analysis of high dividend stocks that are of interest to me. I do provide some of the data I look at my buy prices for stocks on my watch list through my newsletter , but it is not meant to be a stock analysis newsletter. There are lots of those out there. This is the first stock analysis post in hopefully a series of posts.
Company Overview
From Scotia Capital’s research department, which I have available through a brokerage account I have with ScotiaMcLeod who administers my Employee Stock Purchase Plan:
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IGM Financial Inc. (IGM) is Canada’s largest fund company, with $97.1B in mutual
fund AUM and a 16.2% market share. The company is a member of the Power Group of
Companies, which owns 58.4% through Power Financial and Great-West Life Assurance
Company. IGM focuses on building long-term client relationships by providing
professional financial planning through dedicated, knowledgeable representatives,
with access to a broad spectrum of financial products. IGI engages both in-house and
external investment advisors. In April 2001, IGI completed the acquisition of
Mackenzie Financial, which doubled the company’s asset base.
Revenue Profile
The revenue profile is strong, with only a slight dip in 2003, when redemptions were high due to a volatile market. As an investor, I like to see a steady uptrend to revenue. Some minor bumps are fine, but overall we want to see the picture going up!
EPS Profile
Earnings per share is an even more important metric in my mind. Increased revenue is good, but if the company can’t manage costs then earnings are not going to be strong. Earnings are what the investment community scrutinizes greatly, so any missteps by a company on earnings can be disastrous to share prices. Again, we want to see a good up trend with earnings. IGM has demonstrated that over the years, with only a slight down tick in 2001 when it appears that they were not able to manage the huge revenue growth they saw in that year.
Dividend Growth
Ah, my favorite metric when looking at a stock. Usually, if I am examining a stock a lot closer then it has already passed the dividend growth test because it is either a Dividend Achiever or a Dividend Aristocrat. However, I want to look at the trend here as well to see if things are moving along steadily. If dividend increases seem to be slowing down, then I need to figure out why. Things are clipping along nicely at IGM, with what appears to be some acceleration in the rate of dividend increases.
Price
When I am looking into buying a stock, I always make sure that the top three metrics are consistent and trending up. However, it has been said that the money is made when a stock is bought, so I give some consideration to the price of the stock. My approach is to look at it in relation to historical data. I look to see how the shares are trading in comparison to historical P/E ratios and historical dividend yields.
Historical P/E Ratio:
Based on my data, the overall average P/E ratio over the past 10 years (taking the average of the high and low for the year) is 17.8. Given the current P/E ratio of 16.6, this would suggest that based on P/E, the stock is trading at a slight discount.
Historical Dividend Yield:
The overall average dividend yield over the past 10 years (taking the average of the high and low for the year) is 3.0%. The current dividend yield on the stock is 3.6%, which again suggests that the stock is trading at a slight discount based on historical yields.
I also use a piece of software to help me determine my buy prices. It is called the Stock Study Guide, available from the Canadian Shareowner’s Association. It is similar to the tool that is available through NAIC for U.S. investors. Assuming revenue growth of 10% per year, EPS growth of 10% per year, a forward P/E of 17, and a dividend yield of 3.6% my buy price is between $40.96 and $53.32. The current share price of $51.33 puts this stock at a buy.
Based on these three pieces of data, it would suggest that IGM Financial is trading at a slight discount to historical averages and I would consider it a buy.
Summary
IGM Financial has been a steady dividend grower with consistent EPS growth and a solid revenue uptrend. Based on these factors, and the current price I personally would consider adding more to my portfolio. That does not mean that you should, as each investor that invests on their own needs to run their own analysis with their own assumptions to arrive at their own decision.
Disclosure: I own shares of IGM Financial
5 Comments on this post
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Yielder said:
IGM has demonstrated that over the years, with only a slight down tick in 2001 when it appears that they were not able to manage the huge revenue growth they saw in that year.
You need to compare 2001 financials to 2000 financials. A great, cheap, source for Canadian company financial data is . If you’re going to stock pick, you need access to historical data in order to explain anomalies such as this or RET.A’s 1996 earnings stumble.
If you look at IGM’s comparative financials, you see assets going from C$1.985 bil to C$6.122 with a huge jump in debt, bank lines, preferred, common stock, and intangibles. Looking at the income statement, you see the expected increases in revenues and expenses. You also see a one-time expense of C$95.610 mil. Adding this back produces eps of 1.43/shr. This is a 6% increase over 200 0 vs. the actual 22% decline.
For all comapnies but especially for rapidly growing companies such as IGM, it’s critical to look at how ratios are changing. In this case, specifically: has the Mackenzie acquisition paid off? In a market downturn when AUM (assets under management) shrink both by price declines and redemptions, what will happen given the increased leverage resulting from the acquisition. How quickly are they paying down debt.
It’s not enough to look at historical trends which are a start point, and nothing more, to identifying companies that you might want to own. You have to look into and behind the financials in order to understand the company.
I used to use CSA software but found it .
September 12th, 2007 at 6:30 am -
Yielder said:
IGM has demonstrated that over the years, with only a slight down tick in 2001 when it appears that they were not able to manage the huge revenue growth they saw in that year.
You need to compare 2001 financials to 2000 financials. A great, cheap, source for Canadian company financial data is Advice For Investors – http://www.adviceforinvestors.com
If you’re going to stock pick, you need access to historical data in order to explain anomalies such as this or RET.A’s 1996 earnings stumble.
If you look at IGM’s comparative financials, you see assets going from C$1.985 bil to C$6.122 with a huge jump in debt, bank lines, preferred, common stock, and intangibles. Looking at the income statement, you see the expected increases in revenues and expenses. You also see a one-time expense of C$95.610 mil. Adding this back produces eps of 1.43/shr. This is a 6% increase over 200 0 vs. the actual 22% decline.
For all comapnies but especially for rapidly growing companies such as IGM, it’s critical to look at how ratios are changing. In this case, specifically: has the Mackenzie acquisition paid off? In a market downturn when AUM (assets under management) shrink both by price declines and redemptions, what will happen given the increased leverage resulting from the acquisition. How quickly are they paying down debt.
It’s not enough to look at historical trends which are a start point, and nothing more, to identifying companies that you might want to own. You have to look into and behind the financials in order to understand the company.
I used to use CSA software but found it limiting and limited so I developed my own – http://www.dividendgrowth.org/Do-It-Yourself.htm
September 12th, 2007 at 6:36 am -
Ryan said:
Hey, another good dividend stock in Canada is CHC Helicopter. It offers a 2.2% dividend and stands to profit massively from the oil spike. I wrote a full review on my site. I’d appreciate any feedback.
http://www.freundinvesting.com/international/chchelicopter.html
November 11th, 2007 at 1:25 am -
Stephanie said:
Thanks for this blog, the graphs were an excellent addition (I’m a visual learner, so I can really appreciate it).
July 23rd, 2009 at 12:15 pm
[...] The Dividend Guy presents Stock Analysis: Canadian Dividend Stock IGM Financial posted at The Dividend Guy Blog. Excerpt – “IGM Financial has been a steady dividend grower with consistent EPS growth and a solid revenue uptrend. Based on these factors, and the current price…” [...]