In today’s market, dividend investors must be careful to not overpay for dependable yield.
Power Financial (TSX:PWF) is cheap on a number of different perspectives. It can be easily valued on an asset basis because it owns stakes in publicly traded companies. Its positions in Great-West Lifeco (TSX:GWO), IGM Financial (TSX:IGM) and European holding company Pargesa are worth approximately $36 per share. Shares currently trade hands at less than $30 each, close to a multi-year low.
Power Financial is cheap on an earnings basis too. The company earned $2.80 per share in the last year, putting shares at just 10.6 times earnings. The company’s forward P/E ratio is even lower, coming in at 9.7. You won’t mind many stocks cheaper on an earnings basis.
Management has also gotten serious about raising the dividend. From 2008 to 2014, shares paid a dividend of $0.35 each quarter. That payout has been hiked twice in the past two years to current levels of $0.39 quarterly.
The yield is currently 5.3%, with a payout ratio of less than 50% of 2016’s projected earnings.
Why is Power Financial so cheap? One explanation could be its exposure to IGM, which depends on high-fee mutual funds for much of its revenue. Investors could be punishing the company for its exposure to what is being viewed as a dying industry.
Still, with shares at such a low valuation, it’s easy to be bullish on Power Financial.
