MENU

Should Investors in Genworth MI Canada Inc. Be Worried About Canadian Household Debt?

A report courtesy of Statistics Canada in June revealed Canadian household debt as a share of income dropped in the first quarter of 2017, but it’s still hovering around record highs. The ratio of debt to disposable income was down to 166.9% from 167.2% in the fourth quarter of 2016.

The debt-to-income ratio has been a constant worry for experts and analysts who have watched the housing boom with clenched teeth. After the Bank of Canada applied its 0.25% rate hike on July 12, some concerns persist about the ability of Canadians to meet their debt obligations, especially if costs rise.

However, some critics have also pointed out that debt-to-income ratio is not the greatest indicator of economic health in a broad sense or on a case-by-case basis. Economists say that debt-to-service ratio is a better indicator for the financial health of Canadian households. As the Financial Crisis hit in 2008-2009, the Canadian debt-to-income ratio was hovering around the 150% mark, and yet the country and its citizens managed to come out of the crisis very well compared to its peers.

Genworth has taken steps to reassure investors

Genworth MI Canada Inc. (TSX:MIC) is the largest private residential mortgage insurer in Canada. On April 26, in response to the crisis at Home Capital Group Inc., Genworth released a statement and clarified that Home Capital originated mortgages represented 1% of Genworth’s overall business. The company revealed the delinquency rate from these mortgages was below the overall delinquency rate of 0.21%.

The share price of Genworth has seen an increase of 7% so far in 2017 and 10% year over year. On July 25, Genworth closed at $36.27 — up 2.4%.

On May 2, Genworth released its quarterly earnings report. New insurance written was down 11% from the same quarter in the previous year mostly due to regulatory changes. Premiums earned were up 9% at $13 million for the quarter. Net income was reported at $106 million — $18 million higher than the same quarter in the previous year.

The company is set to release its next earnings report on August 1 after the market closes. Experts and analysts will be anxious to see how further regulatory changes have impacted Genworth’s bottom line. It is crucial to keep in mind that many recent trends may only appear at the tail end of the report.

Genworth has demonstrated that it possesses strong financials and is confident in its underwriting standards. The company has minimal exposure to Home Capital mortgages, and the share price has bounced back nicely after concerns over the real estate industry in the spring drove it below the $25 mark.

The stock boasts a dividend of $0.44 per share with a yield of 4.85%. Investors on the lookout for income can easily justify Genworth as a solid add to their portfolios. However, with a pending earnings report after major regulatory changes and reverberations throughout the Ontario housing market, it may be wise to wait on this stock in the second half of 2017.

1 Massive Dividend Stock to Buy Today (7.8% Yield!) – The Dividend Giveaway

The Motley Fool Canada’s top dividend expert and lead adviser of Dividend Investor Canada, Bryan White, recently released a premium “buy report” on a dividend giant he thinks everyone should own. Not only that – but he’s created a must-have, exclusive report that outlines all the alarming traits of dividend stocks that are about to blow up – and how you can avoid them.

For this limited time only, we’re not only taking 57% off Dividend Investor Canada, but we’re offering you special access to two brand-new reports, free of charge upon signing up. They will outline everything you need to know so you steer clear of dividend burn-outs AND take advantage of the dividend giants in the Canadian market.

While this offer is still available, you can find out how to get a copy of these brand-new reports by simply clicking here.

Fool contributor Ambrose O'Callaghan has no position in any stocks mentioned.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.