Power Corp. trades for less than it’s worth. Even better, its dividends yield nearly 6.8 per cent and they look sustainable. It remains an undervalued buy.
We hold a high opinion of Montreal-based Power Corporation of Canada (TSX—POW). Through its subordinate voting shares you can buy assets for less than they’re worth. And you can earn high dividends that look sustainable.
Power calls itself an “international management and holding company that focuses on financial services in North America, Europe and Asia. Its core holdings are leading insurance, retirement, wealth management and investment businesses, including a portfolio of alternative asset investment platforms.”
On June 30, Power’s net asset value per subordinate voting share was $32.96. Power’s stock market price of $26.39 a share was nearly a fifth below its net asset value. In other words, you could buy a dollar’s worth of assets for only about 80 cents.
Buy these high-yield shares on the cheap
The discount gives you a safety buffer. What’s more, the discount improves your chances of profiting. As Power’s earnings and net assets per share continue to rise, so should its share price. Especially if Power eliminates its ‘conglomerate discount’.
Power’s economic interest in Winnipeg-based Great-West Lifeco Inc. (TSX—GWO), for instance, was 66.9 per cent on June 30. Great-West is one of Canada’s Big 3 insurers. Were Power to sell its Great-West shares—which we do not expect—it would receive a lot of cash. In fact, Power’s controlling stake in Great-West makes its interest even more valuable. Only if another entity were to grossly overpay would Power consider selling Great-West. Back when owning a trust company was all the rage, for example, Power sold its controlling stake in Montreal Trustco for a fortune that Montreal-based BCE Inc. was willing to pay.
Power now pays yearly dividends of $1.79 per subordinate voting share. That works out to a highly-attractive dividend yield of nearly 6.8 per cent. If you own these shares in a taxable account, you’ll also benefit from the Canadian dividend tax credit. Interest income, by contrast, is fully taxable.
Very high dividends can indicate that they’re at risk. But we see Power’s dividends as sustainable. For one thing, its expected 2020 earnings of $2.87 a share comfortably exceed its dividend. For another, Power is a ‘dividend aristocrat’ that has raised its dividend in at least each of the past five years. Also, its long-term outlook is favourable.
This is an edited version of an article that was originally published for subscribers in the October 9, 2020, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
The Investment Reporter, MPL Communications Inc.
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