Financials are getting plenty of air time at the moment, as investors look for safe dividends among classically defensive sectors. From the Big Six to some lesser-known Canadian institutions, stock market observers can’t get enough of them.
But there’s more to financials than banking, so let’s take a look at one of the best insurance stocks on the TSX and see if it’s good value for money at the moment.
Banking on financials — minus the banks
One of the healthiest non-banking financial stocks on the TSX right now, Power Financial Corp. (TSX:PWF) is a major player in the life and health insurance sector. It operates in Canada, Asia, Europe, and the U.S., providing personalized financial services through diversified big-name subsidiaries.
Power Financial is expecting a 26.2% annual growth in earnings, so if it’s a high-growth financial stock you’re looking for, look no further. While that’s a significant leap in income, revenue will grow by a slightly more modest 10.3% per annum — but that’s still great growth for a financial stock. It’s got a 0.96 beta, which is higher than the Canadian insurance sector’s average of 0.74, but it still represents robust insulation against market stressors.
Betting on insurance could be good for your portfolio’s health
Power Financial is somewhat overvalued, but keep watching to see whether its share price drops any closer to its projected $24.85 future cash flow value. It’s not far off it at $32.26, making its current price about 25% over what it should be. However, this isn’t the only way to value a stock.
Looking at share prices over the past five years, Power Financial seems to have distinct annual peaks and troughs. For 2018, it appears already to have had its peak and seems now to be in one of its troughs. To go back to its overvaluation, the last time it was anywhere near that $24.85 mark was in August 2016, and even then, it only fell to $29.12. The point is, if gets down to around $30, then snap it up, because that’s likely about as low as it will go this year if past trends are anything to go by.
Let’s move on to income. Investors looking to financials are generally after dividends, and with Power Financial, they’ll find a tasty one. Offering a 5.37% yield — and rising to 5.4% next year — Power Financial is possibly the best overlooked dividend-paying financial stock on the TSX. It’s coming up to its buy limit, so snap it up before June 28, unless you want to wait and see if its price drops ex-dividend. While it might do just that, you could end up buying the stock at the price you want, but you’ll have to wait a while for the next payout.
The bottom line
Power Financial is a good all-rounder and worth having for the dividend alone. It’s nicely diversified in terms of products and markets, and it has very healthy multiples along with good growth prospects. All said, this is a decent stock to buy if you want to add exposure to financials without purchasing straight-up banking stocks. Value investors might want to watch for a slight drop in price before snapping it up. Otherwise, see it for passive profits amid an uncertain economy, and add it to your dividend portfolio before June 28’s buy limit.
Just 6 weeks ago, The Motley Fool’s Iain Butler revealed an ultra rare “triple down” stock recommendation – and investors all over Canada are rushing to get in! Why? Because past “triple downs” have averaged over 100% returns. One “triple down” alone earned 440% returns (in just over two years’ time).
To discover the brand-new “triple down” recommendation, simply click here. You’ll be whisked to a special investor memo prepared by The Motley Fool Canada. The only catch is you’ll have to hurry! This brand-new report could be withdrawn at any time.
Fool contributor Victoria Hetherington has no position in any of the stocks mentioned.