Dividend Analysis - IGM Financial Inc. (TSE:IGM)
16 June 2007Next up is another great dividend paying stock: IGM Financial Inc. It trades on the TSE under the symbol IGM. Let’s see how this stock can help us build a superior portfolio of dividend yielding stocks!
Company Profile:
From ADVFN Financials
Offers financial planning, mutual funds and a comprehensive range of other investment products and financial services.
IGM is a large cap stock with a market capitalization of $14.17B.
Company Fundamentals:
Management has done a superb job and achieved an amazing 10 year return on equity (ROE) of 20.27%. And although slightly lower, the 5 year average is 19.25%. That is pretty consistent performance from management.
Equity growth rate has been quite consistent over the 10 year period. In 2001, there was a whopping 68.59% increase in equity that year. Taking that growth rate out, the rest of the 9 years show a pretty steady growth rate in the 10% range. Not fantastic, but definitely sure and steady.
The earnings growth rate has also been solid over the 10 year period at 16.52%. The 5 year period shows 16.00% growth rate. Unfortunately, the trend is downward albeit quite slowly. In 2006, the earnings per share growth rate was 11.33%.
Sales growth rates have been pretty steady as well. The 6 year rate is 10.98%, the 3 year rate is 11.51% and the 1 year rate is 10.95%. Pretty consistent numbers.
Dividend Fundamentals:
The current dividend yield is a healthy 3.26% which is definitely better than the dividend yield on the S&P/TSX composite.
The dividend growth rate has been stellar over the 10 year period at 19.48%. However, it is on a slight downward trend but seems to be sitting around 15%. That is an amazing dividend growth rate. Your dividends will double ever 5 years!
And cash flow has been growing at an equally impressive number to pay for these dividends. The 10 year period shows a growth rate of 16.03%, the 5 year period shows 12.88% and 2006 shows 11.03%.
The dividend payout ratio has been increasing over the 10 year period from a low of 42.86% to its current high of 53.86%. Still a somewhat conservative payout ratio, although it is starting to get up there. Can they continue to grow their dividends at 15%?
Historical Dividend Yields:
How does the current 3.26% dividend yield compare to its historical values? The 10 year average high dividend yield is 3.58%. So it is slightly lower than the average high. However, the last 7 years have been higher than the 3.58%! So I think there is room to demand a higher yield. If I just take the last 7 years, then the average high dividend yield is 4.03%.
Using 4.03% as the dividend yield that I demand, that would imply that I would only be willing to pay $42.43 per share. At Thursday’s close, the price was $52.40. That means a premium of 23.49%.
See my calculations here.
Conclusion:
IGM Financial Inc. definitely looks like a winner for any dividend yielding portfolio. All the fundamentals are in place and this company seems dedicated to dividend growth. Unfortunately, it is currently selling at a premium. If interest rates head higher, it will hopefully send this stock down enough to get in and make a purchase.
Disclosure: I do not own shares in IGM.
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