Investing in blue-chip dividend stocks that offer a tasty forward yield can help you begin a recurring income stream at a low cost. While Canada has several dividend-paying stocks, just a handful of these companies have showcased an ability to maintain and grow their payouts across market cycles. One such TSX dividend stock that offers you a dividend yield of almost 5% is Great-West Lifeco (TSX:GWO). Let’s dive deeper.
An overview of Great-West Lifeco
Great-West Lifeco is among the largest companies in Canada, valued at $42 billion by market cap. A financial services holding company, Great-West is engaged in segments such as life and health insurance, retirement and investment services, asset management, and reinsurance.
With a sizeable presence in the U.S., Canada, and Europe, Great-West offers a portfolio of financial and benefit plan solutions, such as life, disability, critical illness, accidental death, and health and dental protection for individuals, families, and corporations.
Its product portfolio also includes retirement savings and income, annuities, and other specialty products, as well as employer-sponsored retirement savings plans and individual retirement and taxable brokerage accounts.
Its well-diversified business has allowed Great-West Lifeco to return 125% to shareholders in the past decade after adjusting for dividends. Comparatively, the TSX index has returned 114% since September 2014.
A strong performance in Q2 of 2024
In the second quarter (Q2) of 2024, Great-West reported record base earnings of $1.04 billion or $1.11 per share, an increase of 13% year over year, compared to $920 million last year. The company witnessed pre-tax growth across business segments, and higher net fee income tied to equities, realization of expense synergies, and surplus income from elevated interest rates boosted the bottom line.
Great-West explained, “Net earnings from continuing operations of $1,005 million, or $1.08 per common share, compared to $569 million a year ago reflects improved market experience from interest rate movements and improved nonfixed income assets experience, and lower expenses related to business transformation activities primarily in Europe and Empower.”
Its Canadian business gained traction following the acquisition of Investment Planning Counsel and Value Partners, which increased net asset inflows by $250 million in 2024. The company also achieved a sixth consecutive growth across all value drivers in Europe, including savings and pensions.
Moreover, its U.S. business is on course to become the largest segment within Great-West Lifeco. In Q2, the U.S. segment grew by 19% year over year, which was in line with company guidance.
Is the TSX dividend stock undervalued?
Great-West pays shareholders an annual dividend of $2.22 per share, translating to a forward yield of 4.93%. Moreover, these payouts have more than doubled in the last 17 years, enhancing the yield at cost in this period.
Great-West’s annual dividend expense is close to $2.07 billion, given its outstanding share count. Comparatively, its free cash flow in the last 12 months has totalled $3.80 billion, indicating a payout ratio of less than 53%.
Given its widening dividend payout and expanding earnings base, the TSX stock is quite cheap, priced at 10.5 times forward earnings.
