Is Great-West Lifeco Stock a Buy for its 4.7% Dividend Yield?

Great West Lifeco is a strong dividend stock, especially with that 4.7% dividend to consider. But is that the only reason?

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published November 6, 2024 4:50 pm EST

| More on: GWO

When it comes to investing for stable returns, Great-West Lifeco (TSX:GWO) offers an intriguing option, particularly with its solid 4.7% dividend yield. As a prominent player in the Canadian financial landscape, Great-West Lifeco has earned a reputation for stability and consistent performance in the insurance and asset management space. With a market cap hovering around $44 billion, investors have good reason to pay close attention. Let’s dive into why Great-West could be a compelling dividend buy for income-seeking investors.

dividend growth for passive income — Source: Getty Images

Resilient stock

Over the past year, Great-West has demonstrated resilience, navigating market shifts with a trailing price-to-earnings (P/E) ratio of 11.87. This signals relative affordability. The forward P/E ratio is projected to decrease to 10.37, reflecting investor expectations of continued earnings growth. This favourable valuation is backed by a healthy 12.6% year-over-year revenue growth rate, showing that Great-West Lifeco’s core operations remain robust. Notably, the dividend stock has also maintained a steady price-to-book ratio, standing at 1.75, reinforcing a balanced valuation in line with its assets.

In terms of profitability, Great-West Lifeco shines with an impressive operating margin of 18.69%, thus indicating effective cost management and strong operational efficiency. With a profit margin of 11.32% and a return on equity of 13.21%, it’s clear that the company has been generating substantial shareholder value. This profitability helps sustain its attractive dividend-payout ratio of 54.08%, which aligns well with its annual dividend yield of 4.7%.

Great-West Lifeco has also managed its debt effectively. Currently maintaining a manageable debt-to-equity ratio of 29.61%. While it carries a substantial amount of cash of about $172 billion, the dividend stock’s prudent leverage approach positions it well to weather financial uncertainties. All while still being able to invest in growth opportunities. This balance between risk and reward appeals to long-term, income-focused investors who seek stability.

Looking ahead

For those looking at Great-West Lifeco’s stock performance, the recent trajectory is promising. Trading at around $47.83, GWO is comfortably above its 200-day moving average of $42.83. Thus signalling positive momentum. Plus, the beta of 0.84 reflects less volatility compared to the broader market, thereby making it an appealing choice for conservative investors. While the stock hasn’t reached its 52-week high, it has rebounded significantly from its low, showing resilience and growth potential.

Looking ahead, Great-West Lifeco’s upcoming earnings report will be pivotal for investors assessing its financial health and future prospects. With the financial sector experiencing moderate growth, analysts are optimistic that Great-West Lifeco can capitalize on market opportunities and deliver consistent returns.

Bottom line

Great-West Lifeco’s mix of a strong dividend yield, reasonable valuation, and consistent performance makes it an appealing choice for dividend investors. The dividend stock’s current 4.7% yield is well-supported by stable profitability metrics and a sustainable payout ratio, thus ensuring that income investors can count on steady cash flows. While potential market fluctuations could impact share price, Great-West Lifeco’s conservative balance sheet and global presence offer a safety net. For those focused on building a stable dividend portfolio, the dividend stock is a buy-worthy consideration.