Power Financial Corp. is bringing its version of sexy back: For the first time in 26 quarters, the financial services conglomerate controlled by Montreal's billionaire Desmarais clan is increasing its dividend.
The company said Wednesday it will increase its quarterly dividend by 6.4 per cent, to 37.25 cents a share, payable May 1 to investors who own shares as of March 31. The company also said it earned a fourth-quarter profit of $506-million (71 cents a share), down from $593-million (84 cents) a year earlier due to one-time items.
Power Financial used to steadily increase dividends, typically twice a year, every year. "It was almost like clockwork for a long period," said CIBC World Markets analyst Paul Holden. From 1998 to 2008, the dividend increased more than six-fold, adjusting for stock splits.
But that record came to a halt during the financial crisis, when Power, controlled by holding company Power Corp. of Canada, froze its dividend at 35 cents. Power Financial, which controls insurance group Great-West Lifeco Inc. and mutual fund giant IGM Financial Inc., was challenged like other financial services firms by the 2008-09 financial crisis and its aftermath. Canadian banks and insurers stopped increasing dividends while Manulife Financial Corp. cut its in half.
Canadian banks returned to their dividend-increasing ways in 2011, while Manulife and Industrial-Alliance Insurance and Financial Services Inc. began raising payouts last year. But Power stayed on the sidelines, as did its parent, Power Corp. of Canada, which kept its dividend at the precrisis level of 29 cents a share. "Part of the allure of owning [the Powers] was consistent dividend growth, but that streak was broken with the financial crisis," Mr. Holden wrote in a note last month that anticipated an increase in the Power Financial dividend, titled "Bringing Sexy Back."
The reason Power Financial stopped increasing dividends, said Barclays analyst John Aiken, was because the payouts were driven by cash flows received from its conservative subsidiaries, particularly Great-West, which contributes most of Power Financial's earnings. Great-West also stopped increasing dividends in 2009 due to sluggish earnings performance as low interest rates dampened returns and its U.S. fund manager Putnam Investments LLC, purchased in 2007, generated chronically disappointing returns.
But results have improved of late at both publicly traded subsidiaries, particularly as Great-West squeezed better-than-expected savings from its 2013 purchase of Irish Life Assurance. Both IGM and Great-West increased their dividends recently, leading analysts to forecast Power Financial would follow. Power, which discloses little information above the minimal regulatory requirements, didn't tip its hand.
"Power doesn't state anything," Mr. Aiken said. "It's just a big black box of very powerful individuals."
Mr. Aiken said even if the still-fragile global economy pitches back into crisis, Power's track record of maintaining its dividend through the last crisis bodes well for investors. "The diversification Power represents in terms of the financial services sector it operates in, and its geographic depth, becomes very compelling from a safety standpoint," he said.
But investors shouldn't bank on a second dividend increase this year, Mr. Holden cautioned. "We're not banking on it at this point. But this [increase] isn't necessarily a bad start."
Meanwhile, Sun Life Financial Inc. holds the distinction of being the last major Canadian financial service to keep its dividend at precrisis levels. Analysts expect it will increase its 36-cent quarterly dividend in the coming months.