Topic: Dividend Stocks

Great-West Lifeco Inc. $32 – Toronto symbol GWO

October 1, 2008|by Pat McKeough

GREAT-WEST LIFECO INC. $32 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 894.4 million; Market cap: $28.6 billion; SI Rating: Above average) is Canada’s largest insurance company, with assets under administration of $392.8 billion. The company also provides retirement planning and wealth management services. Power Corp. controls 70.6% of Great-West’s shares.

The company recently sold its U.S. health care business for $1.3 billion. This business faces strong competition from larger insurers, whose size lets them negotiate better terms with medical service suppliers, so selling it made sense.

The cash will help Great- West fund last year’s purchase of struggling U.S.-based mutual fund manager Putnam Investment Trust. Putnam increases Great-West’s exposure to volatile stock markets. However, the acquisition gives it an opportunity to market its products to Putnam’s large client base.

Great-West’s earnings in the three months ended June 30, 2008 shot up to $1.36 a share (total $1.2 billion) from $0.61 a share ($544 million) a year earlier. If you exclude the gain on the sale of the U.S. health care operations and other non-recurring items, per-share earnings grew 3.3% to $0.63. Revenue grew 31.2%, to $5.4 billion from $4.1 billion.

Great-West holds $5.1 billion in securities linked to U.S. subprime mortgages and other risky assets. However, the chances of significant writedowns of these securities remains low.

The stock fell below $26 in July, 2008, but has gained 23% since then. It now trades at 13.0 times the $2.47 a share it will probably earn in 2008. The company also just raised its quarterly dividend by 5.1%, from $0.2925 a share to $0.3075. The new annual rate of $1.23 yields 3.8%.

Great-West Lifeco is a buy.

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