Should Power Financial Corporation (TSE:PWF) Be Part Of Your Dividend Portfolio?

There is a lot to be liked about Power Financial Corporation (TSE:PWF) as an income stock. It has paid dividends over the past 10 years. The company is currently worth CA$20.5b, and now yields roughly 6.0%. Let’s dig deeper into whether Power Financial should have a place in your portfolio.

See our latest analysis for Power Financial

Here’s how I find good dividend stocks

When researching a dividend stock, I always follow the following screening criteria:

• Is their annual yield among the top 25% of dividend payers?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has dividend per share risen in the past couple of years?

• Does earnings amply cover its dividend payments?

• Will it be able to continue to payout at the current rate in the future?

TSX:PWF Historical Dividend Yield November 8th 18

How does Power Financial fare?

Power Financial has a trailing twelve-month payout ratio of 62%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 48%, leading to a dividend yield of 6.1%. However, EPS should increase to CA$3.49, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. In the case of PWF it has increased its DPS from CA$1.34 to CA$1.73 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.

Relative to peers, Power Financial generates a yield of 6.0%, which is high for Insurance stocks.

Next Steps:

Keeping in mind the dividend characteristics above, Power Financial is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three pertinent factors you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for PWF’s future growth? Take a look at our free research report of analyst consensus for PWF’s outlook.

2. Valuation: What is PWF worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether PWF is currently mispriced by the market.

3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.