3 Top Reasons to Buy Great-West Lifeco Stock After its Q4 Earnings

These factors make GWO stock attractive for investors looking for a fundamentally strong, dividend-paying stock from the financial sector.

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Great-West Lifeco (TSX:GWO), the Canadian financial services holding firm, recently announced its financial results for the fourth quarter of 2023. The company delivered record base earnings, also encouraging its management to generously increase dividends.

The Winnipeg-headquartered company has impressed in a variety of financial services businesses, including life insurance, health insurance, investment services, and asset management. Besides its home market, it currently generates a large portion of its earnings from Europe and the United States.

In this article, I’ll highlight three top reasons that make Great-West Lifeco stock worth considering after its latest quarterly results. Let’s take a closer look.

Record base earnings and financial growth

In the December 2023 quarter, Great-West Lifeco reported a record base adjusted net profit of $971 million, up 8.9% YoY (year over year). This translated into adjusted earnings of $1.04 per share, exceeding Street analysts’ expectations of $1.01 per share.

This increase reflected the company’s continued focus on strategic repositioning and investment in enhancing its portfolio. Notably, Great-West’s full-year base earnings climbed to $3.7 billion, registering an 11% YoY increase, with its subsidiary, Empower, crossing $1 billion in base earnings.

Even as macroeconomic uncertainties continue to haunt many businesses globally, Great West attributed this strong earnings growth to favourable economic conditions. For example, higher average equity markets led to an increase in its fee income, and higher interest rates boosted earnings on surplus.

Dividend increase and strong return on equity

In a move that will please investors seeking passive income from their stock investments, Great-West Lifeco has announced a 7% increase in its dividend, reflecting its strong financial health and commitment to returning value to shareholders.

This dividend increase is clearly supported by its impressive financial growth, including a base return on equity (ROE) of 16% over two years and a base earnings average dividend payout ratio of 56% over five years. Such strong performance indicators reflect not only the Canadian financial services company’s expanding profitability but also its robust financial management.

Interestingly, Great-West Lifeco has raised its dividends by around 36% in the five years between 2018 and 2023.

Focus on strategic repositioning for future growth

While a company may have posted strong financial growth in the past, it doesn’t necessarily mean it will continue to do so in the future without paying attention to its key growth drivers.

Great-West Lifeco has been focusing on strategic repositioning for future growth by expanding its global presence, diversifying its product portfolio, and investing in digital transformation. For example, the recent sale of Putnam Investments aimed to enhance its strategic partnerships with best-in-class asset managers. Similarly, the successful integration of Prudential’s full-service retirement services business has helped Great-West achieve pre-tax run-rate cost synergies of US$80 million so far.

Moreover, the acquisition of Investment Planning Counsel and Value Partners by its subsidiary Canada Life is likely to make Great-West more attractive to advisors and clients.

Foolish bottom line

Given these achievements and growth initiatives, I wouldn’t be surprised if Great-West Lifeco stock continues its upward journey in the years to come, making it look attractive to buy now, especially if you’re looking for a fundamentally strong, dividend-paying stock from the financial sector.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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