Genworth MI Canada Inc. (TSX:MIC) has been a dividend stalwart on the Toronto Stock Exchange since its 2009 IPO, increasing its payout annually to investors. The quarterly dividend was $0.22 per share when the company became publicly traded. It’s now $0.42.
Earnings have also been slowly rising. In 2008, the company earned $337 million, or $3.02 per share. Over its last 12 months, earnings came in at $366 million, or $3.93 per share. Earnings were even better in 2015, coming in at $4.22 per share.
And yet, the company doesn’t get much respect, only trading at 8.8 times trailing earnings with a dividend yield of 4.9%.
There’s a pretty simple reason why. Genworth is in the mortgage default insurance business, and while business has been good thanks to strong real estate markets across the country, many investors are concerned the bubble is about to burst.
There’s no telling how such an event would impact Genworth, but it likely wouldn’t be pretty. As of June 30, it had approximately $3.5 billion in equity to cover more than $300 billion worth of mortgages guaranteed. A large default rate in Toronto and Vancouver will quickly do major damage to its balance sheet.
There’s also the risk of the parent company unloading its 57.5% stake in the company, which could drive down shares. Genworth in the United States is suffering from a plethora of issues.
