IGM Financial Inc. (TSX:IGM), the parent company of Investors Group and Mackenzie Financial, has long been one of Canada’s dividend stalwarts. According to Yahoo Finance, the company hasn’t missed a dividend since 1995.
But it might not all be good. Some investors are speculating the company’s attractive 6.2% payout may not be safe over the long term.
They point to a few different reasons why. Investors Group, the company’s army of more than 5,000 licensed mutual fund and life insurance salespeople, is struggling a bit as retail investors move away from expensive mutual funds and into cheaper ETFs.
Since Investors Group sells a ton of Mackenzie Financial funds, this decline will hit the parent company especially hard.
IGM’s yield is quite high, especially in a world where 2% is the norm in fixed income. It might very well cut the payout just to get it to within range of its competitors.
If the company is going to successfully switch its business model to something more 21st century friendly, it will likely require capital to do so. Slashing the dividend is the easiest way for it to free up cash for other purposes.
However, keep in mind the company easily earns enough to cover the payout, at least for the time being. Trailing 12-month earnings are $3.00 per share while dividends were $2.25, putting the company at a 75% payout ratio, which isn’t so bad.
The company might also appeal to value investors, since it currently trades at just over 12 times earnings, a very reasonable number in today’s market.
