Dividend Analysis - Power Corporation (TSE:POW)
22 June 2007Heading back over to Canada, next up is Power Corporation which trades on the TSE as POW. Reminds me of the old Batman series with Adam West! Pow! Bam! Kerbang! Ok. Enough with the nostalgia. Let’s see if this stock is worthy of joining our dividend yielding portfolio.
Company Profile:
From ADVFN Financials
A diversified management and holding company that holds interests, directly or indirectly, in companies that are active in the financial services, communications and other business sectors.
This company has 15,500 employees and has a current market capitalization of $16B.
Company Fundamentals:
Return on Invested Capital has been steady as clockwork on this stock. The 5 year average is 10.40% and that looks about right for the 10 year average as well.
Return on Equity has also been super consistent. The 10 year average is 12.12% and the 5 year average is 12.61%. Stability in a dividend payer is the key. So far so good.
Looking at the equity growth rate, I think the word of the day is going to be ‘consistent’. Once again, consistent steady growth for the whole 10 year period. Over 10 years, the average is 12.45%. Over 5 years, the average is 11.56%. And last year, it was 20.15%.
Earnings per share growth rate actually shows two down years: 1998 and 2002. This is interesting because the company was still growing equity in those years! The last couple of years have been low compared to the rest of the years (not including the negative years) at below 8%.
The sales growth rate over the 10 year period was 11.28%. The 5 year period exhibited growth of 11.94%. And last year we say a growth rate of 13.87%. Pretty consistent.
Dividend Fundamentals:
Power Corporation is currently sporting a 2.42% dividend yield. That is just slightly higher than the dividend yield on the TSX Composite Index.
And getting back to our favourite word of the day, look at the consistent dividend increases! All hovering right around the 17% range for the entire 10 year period. You have to love that steady, consistent growth!
Cash flow growth rate has been 15.76% over the 10 year period. Right in line with the dividend growth rate. However, the last 2 years have shown significantly decreased growth rates below 7%.
The dividend payout ratio is actually quite low - and consistent! The dividend payout ratio has hovered between 26% and 31% over the 10 year period. Lots of room for increase at these levels.
Historical Dividend Yields:
I am almost afraid to say it. But I will. Consistent dividend yields over the last 10 years. The 10 year average high dividend yield is 2.51%. And the 5 year average high? An incredibly consistent 2.52%!
So, if I demand a dividend yield of 2.52%, then I should be willing to pay $38.29. At close of Wednesday, the current price was $39.94. That means a premium of 4.30%.
Graham Number:
Looking at our other valuation methods, Graham number comes in at $34.20. That means a premium of 16.79%. Not too bad. Considering that our dividend growth is 17% a year, we can make that premium back quickly.
Present Value:
P/E over the 10 year period has been consistent! From 13.44 to 14.85. I’ll use the lower value of 13.44.
For my EPS growth rate, I’ll use the lower of my consistent equity growth rate numbers which gives me 12.12%. Unfortunately, I was not able to find any analyst estimates for this stock.
Roll that all together, and you come out with a present value of $28.74. That is a premium of 38.98%. Obviously this valuation comes up with a lower intrinsic value than the other two methods.
Check out all my calculations here.
Conclusion:
I definitely would have to say that this stock is worth adding to a dividend yielding portfolio. With its consistent, high dividend growth, this stock should be able to make up for its current premium in a short time. I will definitely be adding this to my watch list (and portfolio!).
Disclosure: I do not own any stock in POW at the time of this writing.
Popularity: 8%
Related posts that may interest you:
If you enjoyed this post, make sure to subscribe to my RSS feed.
Email This Post
Loading ...
