Nice-West Lifeco Inc. (TSX:GWO:CA, OTCPK:GWLIF) is considered one of Canada’s largest monetary companies firms. It has a powerful concentrate on medical health insurance, life insurance coverage, and an growing concentrate on retirement and funding companies. In my earlier article, I needed to concentrate on the current acquisitions within the retirement companies sector, and as Nice-West has now printed its full-year outcomes I, figured it is a good time to observe up on the corporate, as its share worth is up by 15% since mid-October, and because it has simply introduced a dividend improve.
Nice-West ended the yr on a powerful notice
Nice-West needs its shareholders to concentrate on the “base earnings”: a non-GAAP metric which goals to take away the “white noise” from the earnings outcomes. Whereas the third quarter was fairly weak for Nice-West, its monetary outcome on the finish of the yr was fairly good. Not solely did its whole quantity of assets increase to C$701B, the entire quantity of belongings beneath administration and administration elevated by about 4% and nearly 5%, respectively, to C$1.03T and C$2.5T.
The bottom earnings got here in at C$892M whereas the online earnings within the closing quarter of the yr simply exceeded C$1B. This resulted in an EPS of C$1.10 based mostly on the web earnings, and just below C$0.96 per share in case you would simply take the bottom earnings into consideration. The distinction between the bottom earnings and reported internet earnings is fairly straightforward to clarify. As talked about above, the bottom earnings take away the “white noise” from the equation, and the picture under exhibits how, for example, the unfavourable influence of actuarial assumption adjustments and the influence of an up to date tax laws are added back to the equation.
Curiously, trying on the full-year outcomes, the reported internet earnings and the bottom earnings are precisely the identical, however that is mere coincidence.
Nice-West Lifeco Inc. has been paying a quarterly dividend of C$0.49 per share, however has now hiked the dividend by 6% to C$0.52. The total-year dividend of C$2.08 per share at present represents a dividend yield of roughly 5.8%. Contemplating the payout ratio continues to be simply round 60%, I feel Nice-West will have the ability to hike its dividend once more within the close to future.
The popular shares are fascinating as properly
Take into account the reported internet earnings of C$3.2B additionally contains the C$130M in most well-liked dividends the corporate owed on its most well-liked shares. Many of the most well-liked shares it has issued have a hard and fast most well-liked dividend, however the N-shares is among the two points with a 5 yr reset.
The N shares are at present paying simply 1.749% per yr (just below C$0.44 per most well-liked share per yr) however will reset on the finish of December 2025 to the 5 yr Canadian authorities bond yield plus a mark-up of 130 foundation factors. As the present 5 yr yield stands at 3.27%, this collection of the popular shares would reset at 4.57% based mostly on in the present day’s 5 yr bond yield. That will symbolize an annual most well-liked dividend of C$1.1425 per share, and based mostly on the present share worth of C$12.65, the yield would bounce to 9% if one would purchase that safety proper now.
Does this imply the market is mispricing the N-shares? Not likely. The reset date continues to be nearly three years away so if the popular dividend certainly resets to C$1.1425 per share from 2026 on, traders will generate a median yield of 6.9%. That is fairly good, however it assumes that on this state of affairs, the 5-year Canada authorities bond yield would not drop additional as an excellent reset is required to convey the entire return on the long run consistent with the fixed-yield most well-liked shares. Proper now, these N-series are providing a most well-liked dividend yield of lower than 3.5%, so anybody who buys these securities would kinda prefer to see the 5-year Canada bond yield exceed 2.5% by the point the reset date comes round.
Due to the sturdy monetary outcomes of Nice-West, the popular dividends seem like secure: throughout FY 2022, Nice West wanted about 4% of its internet earnings to cowl the popular dividends, leading to a really secure protection ratio of virtually 2,600%. That is vital as Nice-West’s most well-liked shares are non-cumulative so a dividend suspension must be prevented in any respect prices.
And searching on the liabilities aspect of the stability sheet above, we see the entire quantity of fairness is C$32.3B. About C$3.3B ranks senior to the popular shares, however as the entire quantity of most well-liked fairness that’s at present excellent is “simply” C$2.72B, it principally means there may be about C$26B in widespread fairness which ranks junior to the popular shares. So whereas the non-cumulative standing is one thing to be aware of,
Nice-West Lifeco ended 2022 on a powerful notice and I’m trying ahead to seeing how the asset supervisor and insurance coverage firm will proceed to unlock the synergy advantages from its current acquisitions. The 6% dividend improve is encouraging, and because the share worth of the popular shares just lately gained again fairly a little bit of the bottom it beforehand misplaced, the popular shares are actually not extra engaging for the income-searching traders.
Primarily based on the present share costs, I choose the widespread shares of Nice-West Lifeco Inc. as a result of comparatively sturdy (and growing) earnings and the potential for future dividend hikes. Though Nice-West Lifeco Inc. inventory is buying and selling at a premium of virtually 40% to the guide worth, have in mind the guide worth per share will increase on an annual foundation as Nice-West retains an honest portion of its internet earnings.
I’ll keep watch over the N-series of the popular shares, however that might be extra a speculative guess on the reset on the finish of 2025.
Editor’s Be aware: This text discusses a number of securities that don’t commerce on a serious U.S. trade. Please pay attention to the dangers related to these shares.