For most investors, Canada’s Big Five make up the bulk of (if not all) their Finance sector holdings. As the banks have expanded over the past few decades, owning them gives you exposure to a broad variety of financial services, including wealth management, brokerage and insurance.
Even so, we feel most investors would benefit from adding specialized, non-bank Finance stocks, such as this leader in its industry.
The stock trades at just 11.3 times the company’s 2022 earnings forecast.
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IGM FINANCIAL INC. (Toronto symbol IGM; www.igmfinancial.com) is Canada’s largest independent mutual-fund provider. It also offers ETFs and wealth management services.
IGM, through its Mackenzie Financial Corporation business, has agreed to buy more shares in China Asset Management Co., Ltd. (China AMC), one of that country’s largest mutual fund sellers.
The seller is Power Corp. of Canada (Toronto symbol POW), which owns 61.8% of IGM.
Under the terms of the deal, IGM will acquire Power Corp.’s 13.9% interest in China AMC for $1.15 billion in cash. That will double its stake to 27.8%.
To help pay for this acquisition, IGM will sell 15.2 million of its shares (worth $575 million) in life insurance firm Great-West Lifeco Inc. (Toronto symbol GWO) to Power Corp. (Note—Power Corp. currently owns 66.7% of Great-West.) That will cut IGM’s stake in Great-West from 4% to 2.4%.
The company will fund the remaining $575 million of the purchase price with its existing cash balances, which totalled $1.12 billion as of September 30, 2021.
If regulators approve, IGM expects to complete the transaction in the first half of 2022.
The deal will make it easier for Mackenzie Financial to market its funds and other products to China AMC’s clients. The transaction should also immediately add to IGM’s earnings.
Value Stocks: Inflows, revenues and earnings remain strong
In the meantime, the firm last raised its quarterly dividend by 4.7% with the January 2015 payment. Investors receive $0.5625 per share for an annual rate of $2.25. That makes for a high 5.0% yield.
The company is also the largest investor in robo-advisor Wealthsimple. That firm now has 1.23 million clients and $15.3 billion in assets under administration. IGM’s 23% stake in Wealthsimple is now worth $1.15 billion.
The company’s fee income rises and falls with the value of the mutual funds and other securities it manages.
Its assets under management (and advisement) totaled $271.1 billion as of October 31, 2021. That’s up 40.5% from $193.0 billion a year earlier.
Thanks to those higher assets, as well as strong inflows of new money, IGM’s revenue in the third quarter of 2021 gained 12.7%, to $891.0 million from $790.6 million a year earlier.
The higher revenue also lifted overall earnings in the quarter by 26.4%, to $270.8 million from $214.2 million. Due to more shares outstanding, per-share earnings rose at a slower pace of 25.6%, to $1.13 from $0.90.
Recommendation in Dividend Advisor: IGM Financial Inc. is a buy.
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