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IGM Financial is in a strong position to profit as baby boomers sign up for retirement planning services. The company also trades at a low multiple to its earnings and will probably raise its dividend in 2015.
IGM FINANCIAL INC. (Toronto symbol IGM; www.igmfinancial.com) is Canada’s largest independent mutual fund firm. Power Financial owns 58.7% of IGM, along with 67.0% of Great-West.
IGM has two main divisions. Investors Group sells mutual funds and other services, like portfolio management and mortgages, through 4,870 affiliated advisors. This division forms close relationships with clients, which helps it hang on to them. In the past year, its redemption rate for long-term funds was 9.1%, below the industry average of 16.3%.
The other division, Mackenzie Financial, sells funds through independent brokers.
As of July 31, 2014, IGM had $142.1 billion of assets under management, up 14.0% from a year ago. IGM’s fee income rises and falls with the value of the securities it manages, so its revenue and earnings gain when the price of these assets rises.
IGM’s revenue rose 19.3%, from $2.3 billion in 2009 to $2.7 billion in 2011. Revenue fell to $2.6 billion in 2012, but rose to $2.7 billion in 2013.
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Stocks to buy: Positive earnings forecast and 4.3% dividend yield add appeal
IGM’s earnings gained 34.6%, from $618.9 million in 2009 to $833.0 million in 2011. Per-share earnings gained 37.6%, from $2.34 to $3.22, on fewer shares outstanding. Earnings declined to $2.92 a share (or a total of $746.4 million) in 2012 but rose to $3.02 a share (or $763.5 million) in 2013.
The company’s 2014 earnings will probably improve to $3.37 a share, and the stock trades at a reasonable 14.8 times that forecast. The $2.15 dividend yields 4.3%.
Securities regulators are considering changes to the fees mutual fund operators charge, including requiring greater disclosure of these fees. That could hurt demand for IGM’s mutual funds and other investment services, but any new rules would also apply to other fund companies.
IGM Financial is a buy recommendation of The Successful Investor.
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Every Tuesday we bring you “Best Canadian Stocks.” You get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You’ll read about stocks making moves you should know about, from coverage in one of our three newsletters featuring Canadian stocks—The Successful Investor, Stock Pickers Digest and Canadian Wealth Advisor.
