Buy C.I. Financial — it’s now a Key stock

We’ve added C.I. Financial to our list of Key stocks. This wealth-management firm is a buy for attractive and rising dividends as well as a decent growth stock with long-term share price gains.

We’ve added growth stock C.I. Financial Corp. to our list of Key stocks. This diversified wealth-management firm—one of Canada’s largest investment fund companies—is a buy for attractive and rising dividends as well as long-term share price gains.

With Canada’s population aging, there’s a growing need for wealth-management services. With millions of baby-boomers accumulating wealth and entering retirement over the next 20 years or so, wealth management should remain a growth sector.

C.I. Financial is highly profitable. In 2014, it’s expected to earn $1.81 a share. That’s up by 20.7 per cent from $1.50 a share last year. Next year, the company is expected to earn $2.15 a share, for earnings per share growth of 18.8 per cent. It has used part of its stock growth earnings to raise your dividends.

Fast profit growth justifies a higher price

C.I. Financial is not cheap. It trades at a forward price-to-earnings ratio of 19.5 times. Then again, earnings growth of 20.7 per cent this year implies a short-term MGI (or Marpep Growth Index) of 1.1. This MGI of above 1.0 suggests that the shares are slightly undervalued.

Over the past five years, C.I. Financial’s earnings per share have grown at an average yearly compound rate of 12.4 per cent. This leads to a long-term MGI of 0.6. This does not suggest that the shares are undervalued. But the future outlook matters more to C.I. Financial Corp. in the forward-looking stock market. In addition, C.I. Financial’s return-on-equity is an excellent 23.74 per cent. That is, it produced a return of 23.74 cents on each dollar of the shareholders’ equity.

C.I. Financial has just become a “dividend aristocrat”. That’s because it has raised its dividend in each of the past five years. In 2009, the company paid 63 cents a share. It has since raised its dividend each year. C.I. Financial’s current dividend of $1.14 a share yields an attractive 3.24 per cent. Thanks to its growing earnings, we expect the company to continue to raise its dividend in each of the years ahead.

This focus on the shareholders is only natural. After all, management owns 10.2 per cent of C.I. Financial’s shares. This makes their interests similar to yours. With what’s called “skin in the game,” it’s very much in management’s best interests to make sure that the company remains successful.

Bank of Nova Scotia owns 36.8 per cent of C.I. Financial. Canada’s big banks are all intent on expanding their wealth-management businesses. As a result, Scotiabank could buy the C.I. Financial shares it doesn’t already own. If so, the shares would jump.

 

C.I. FINANCIAL CORP. $35.21 (Quality rating: Very Conservative; Sector: Finance; TSX—CIX; T: www.ci.com) is now a Key stock. Buy for attractive and rising dividends plus long-term price gains.

 

The Investment Reporter, MPL Communications Inc.
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