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.
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:
IGM Financial Inc. (IGM) is Canadaâ€™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 companyâ€™s asset base.
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!
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.
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.
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.
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