February 21, 2018

Power Corp of Canada (POW)

 

 

 

 

 

Power Corporation of Canada (POW) is a huge conglomerate holding company that owns controlling positions of several financial, industrial, and communications companies.  Power Corporation was founded in 1925 and was originally a hydro company based out of Montreal, Quebec.  The company steadily grew and diversified into other industries as they expanded.  It has become over time a great Canadian dividend stock. When the Canadian government decided to nationalize much of Power Corp’s (POW) hydroelectric portfolio, the company was suddenly faced with a dilemma.  They had a lot of cash on hand, but the industry they had grown up in was no longer a good place to grow it.  Instead, they invested the proceeds from their first couple decades of growth into a variety of companies, with a focus on oil.  Over the last 75 years the company has grown exponentially through sound management and stable investing fundamentals.  They have become a world-class holding company.  For those of you that aren’t familiar with what the title of “holding company” refers to, it basically means a company that owns large parts of several other companies.  The most famous example would be Berkshire Hathaway (BRK.B) whose much-celebrated owner-manager is none other than Warren Buffett.  Berkshire owns a controlling interest in hundreds of other companies that are diversified across every sector of the economy, despite starting off as a basic insurance company.  This is much the same process (albeit on a smaller scale) that Power Corp of Canada (POW) has undergone.

 

Power_Corporation_of_CanadaPower Corp’s main holding is Power Financial, which it owns about two-thirds of.  Through this subsidiary, Power Corp (POW) owns notable financial companies such as Great-West Lifeco Inc. (GWO) and IGM Financial management (IGM), which of course are also publically traded companies in their own right with Power Financial (PWF) owning 68% and 57% of the companies respectively.  Through these sizeable financial holdings Power Corp indirectly owns London Life Insurance, Mackenzie Financial Corporation, and Investors Group Inc. amongst others.

 

The Globe and Mail recently did a direct comparison of Power Corp (PWO) to the more well-known Berkshire Hathaway.  Surprisingly the long-term track record of the former held up nicely to the latter.  Power Corp has yielded only 1.34% to Berkshire’s 6.98% over the past 5 years, but if you look at the 10 and 15 year comparisons, Power Corp (PWO) actually comes out on top.  This is if you include Power Corp’s substantial dividend (4.2%) which is a feature that Berkshire does not offer (Buffett prefers to reinvest all the proceeds his subsidiaries generate.

 

Power Corporation (PWO) is obviously heavily reliant on its life insurance and financial management subsidiaries.  These companies have been hit hardest by the past five years of market turmoil and this has driven down the earnings and cost of the stock.  With the recent downturn the company is trading at 12.5 times earnings.  With its substantial dividend, and long-term history of sound management that places a high value on diversification, Power Corp could easily be considered undervalued at this point, and a sound play for the future, even if they do not have Warren Buffett.

 

Power Corporation of Canada (POW) Dividend Stock Graph:

TSE POW

Power Corporation of Canada (POW) Dividend Metrics:

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
POWPower Corp of Canada28.364.0961.320.640251211.437370

 

 

 

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  1. […] Financial Corporation (PWF) is the main subsidiary of the massive holding company Power Corp (POW).  Power Corp owns three main branches of businesses, of which Power Financial is by far the […]

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