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One of Canada’s large financial holding companies appears to be an attractive dividend investment opportunity, according to Scotiabank analysts.
Power Corporation of Canada, which oversees a portfolio of insurance and wealth management businesses, currently offers investors about 5% dividend yield with the potential for significant growth, according to the investment bank.
“We think Power Corp (POW) offers an attractive combination of value, resilience and healthy dividend yield and that over time, it will be recognized as a quality earnings compounder,” said Scotiabank’s analysts led by Phil Hardie in a note to clients on Dec. 2 which highlighted the company’s potential in dividend investment strategies.
The financial giant, which holds controlling stakes in Great-West Lifeco and IGM Financial, is trading at about a 26% discount to its estimated net asset value, despite making significant strategic progress, according to the bank. Scotiabank believes this discount should eventually narrow to between 10% and 15% as the company scales up its alternative investment platforms.
A key driver of Power Corporation’s growth potential lies in its largest listed subsidiary, Great-West Lifeco, which is expected to raise its earnings growth targets at its investor day in April, the analysts noted. This development could boost Power Corporation’s dividend growth rate, as Great-West represents its largest source of dividend income.
“We think the value of the dividend growth is not reflected in the stock price and is underappreciated by the Street,” the analysts added.
Scotiabank’s price target of 56 Canadian dollars ($40) is around 20% above the current stock price, with additional upside potential if dividend growth rates increase. The stock is also traded in the U.S.
Recent corporate moves support this positive outlook.
The company recently agreed to sell its stake in Peak Achievement Athletics for around 440 million Canadian dollars, providing additional capital for potential shareholder returns. Power Corporation has also been actively buying back shares, purchasing 3.1 million shares in the third quarter of 2024.
Analysts at Desjardins Securities have also noted that Power Corporation “has ways to surface value in the future” while maintaining an attractive dividend yield and trading at a discount to its net asset value.
The investment firm raised its price target to 49 Canadian dollars in November citing the company’s approximately 600 million Canadian dollars in free cash available for potential share buybacks or other strategic deployments.
