Skip to main content
Canada’s most-awarded newsroom for a reason
Enjoy unlimited digital access
$1.99
per week
for 24 weeks
Canada’s most-awarded newsroom for a reason
$1.99
per week
for 24 weeks
// //

Billionaire Paul Desmarais' Power Corp. of Canada and its subsidiary, Power Financial Corp., used to live up to their names by powering up their dividends every year. Those hikes stopped when financial markets melted down in 2008 and aren't likely to resume any time soon. But yield-seeking investors looking for a jolt should consider adding some Power to their portfolios: The dividends may not be growing, but they are compellingly valued nonetheless.

Power Corp. is a holding company that has as its main holding a 66-per-cent share in Power Financial, another holding company. Power Financial, in turn, controls insurance giant Great-West Lifeco, mutual fund giant IGM Financial Group (operator of the Investors Group and Mackenzie funds). It also owns a 28-per-cent stake in Pargesa Holding SA, a European investment company that owns stakes in such continental stalwarts as Lafarge, Total and Pernod Ricard.

The Powers' dividends largely depend on dividends from publicly traded Great-West and IGM. Dividend growth there has stopped as well, and neither has been a compelling investment for some time. Low interest rates and weak markets are bad for insurance company profits; Great-West compounded the problem by purchasing U.S. mutual fund giant Putnam in August of 2007 at just the wrong time. Since the acquisition, Putnam's assets under management have dropped by 31 per cent (to $127-billion U.S. as of Sept. 30) and investors have pulled out a cumulative $41.3-billion in assets.

Story continues below advertisement

Net redemptions and weak returns have also bedevilled IGM; it ended the third quarter with slightly lower assets under administration – $119.3-million – than it had at the end of 2006. The business recently trimmed management fees to slow redemption rates. That lowers potential revenues, but still leaves IGM charging among the highest fees in the business.

These challenges aren't going away, which means earnings growth will be muted and dividend hikes unlikely in the Power family for the foreseeable future. That's the bad news.

The good news is that there is still value to be had for investors. By historical standards Power Financial is undervalued; it trades at an 11-per-cent discount to its net asset value, compared with a five-year average of 8.5 per cent and a 10-year average of 8 per cent, CIBC analyst Paul Holden says.

Even better, it turns out those stagnant dividends are not so bad after all. Power Corp. pays 29 cents a quarter and Power Financial pays 35 cents, representing yields of about 4.8 per cent and 5.4 per cent, respectively. While IGM and Great-West aren't exactly rock stars, their dividend-paying abilities are not in any danger.

Conservatively managed Great-West has held up well through the recent financial turmoil, while Mr. Holden assigns a very low probability that IGM could cut its dividend. It may be a while before investors see meaningful capital returns from Power stocks, but at least they'll be paid handsomely to wait.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies