Trade growth for income with GWO

Great-West Lifeco is a leading international financial services powerhouse providing life and health insurance, investment and retirement services, asset management and reinsurance business. It is an industry leader in group benefits in Canada. Great-West Lifeco is a leading provider of individual life insurance with nearly three million individual life insurance policies in force and more than 31 million customer relationships worldwide. The U.S. is its largest market accounting for more than 75% of total sales last year. Its reportable segments are Canada (accounting for 37% of 2019 earnings), the U.S. (13%) and Europe (50%). In Canada, Great-West Lifeco offers a broad portfolio of financial and benefit plan solutions for individuals, families, businesses, and organizations, through a network of multi-channel distribution network consisting of brokers, advisors, and agencies. Great-West Lifeco operates through its brands like Canada Life, Empower Retirement, Putnam Investments, and Irish Life. The company has over $1.6 trillion in total assets under administration.

Investment Data
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Revenue Growth & Market Exposure

With a history dating back 125 years, Great-West Lifeco has nurtured deep relationships with its clients and distributors and is well-positioned to address the diverse needs of its customers, at different stages of their lives. The company is investing in newer technologies to help customers connect better and meet the evolving needs of diverse customer segments. Lifeco continues to introduce new digital capabilities to increase group member engagement and support the advisor community. Great-West Lifeco has compounded its revenue at more than 10% CAGR in the last five years. Other than providing traditional risk-based insurance products, the company also earns investment management fees on assets managed, ASO contracts, and other fees. Premium income accounts for 80% of Lifeco’s total income while fee and other income constitute over 10%. The company’s portfolio is highly diversified by geography, channel, and type. Its wide range of products and services has made it a preferred partner of choice for millions.

Lifeco has already sold substantially all of its individual life insurance and annuity business in the U.S. to focus on the defined contribution retirement and asset management markets. With the amalgamation of three Canadian life insurance companies, the company has also re-established itself under one brand – Canada Life which is expected to drive efficiencies from the simplification of its business model in Canada. It launched a new Canada life segregated fund shelf in the fourth quarter, bringing together the best funds from its three legacy platforms. In the U.S., Empower finished the year with record sales and growth across small, mid and large plan segments and is the preferred choice for retirement plan advisors. In Europe, Lifeco’s reinsurance business continued to exhibit strong performance; and it continued to focus on retirement and group benefit markets in the UK. Lifeco fees increased by 7% year-over-year with strong growth across segments. All of its brands enjoy strong customer connections in each of their markets and are known for providing trusted products and advice. Its assets under administration grew to $1.6 trillion increasing by 17% YoY as a result of improving markets and business growth.

Dividends

Great-West Lifeco has a consistent record of increasing dividends. It has a high and attractive dividend yield of 8.1% and a payout ratio of 70%. The company last raised its dividend by more than 6% marking the sixth consecutive year of dividend increases and has also compounded them at 6.1% in the last three years. It also issued a new NCIB in January 2020 to purchase up to 20,000,000 common shares through January 2021.

Great-West Lifeco is a leading provider of individual and group customer insurance products. It enjoys a 27% market share of individual segregated funds and a 21% market share for employee benefit plans. The company’s reputation for prudent business practices as well as the depth and breadth of its products and distribution positions it well for the future. Great-West Lifeco has demonstrated sustained earnings growth driven by innovation and disciplined capital deployment. Lifeco’s strong capital position and financial flexibility have helped the company increase its dividend payouts consistently. The company continues to invest strategically on both organic as well as acquisition opportunities to drive growth and productivity.

Great-West Lifeco’s business fundamentals, as well as strong capital position, bodes well under a low-interest-rate environment. A majority of its income comes from investment management fees and others that are not very interest rate-sensitive. The company ended the year with $700 million granting ample financial flexibility. 

Competition

The individual insurance, group life and health benefits, savings and investment marketplaces are highly competitive. Great-West Lifeco’s main competitors include mutual fund companies, insurance companies, banks, and investment advisors as well as other service and professional organizations. Focus on digital initiatives, strong capital position, and financial flexibility are the company’s key competitive advantages.

The company competes with large and small, national as well as international companies. New FinTech competitors have also increased competition. Great-West Lifeco maintains a strong competitive position in the Canadian group market with a leading market share position and manages the largest portfolio of life insurance in Canada as measured by premium. It also continues to receive strong ratings relative to its North American peer group.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYieldYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:RYRYRoyal BankFinancial ServicesBanks - Diversified0.6795.47102.9812.2712.277.780.054.520.555344.320.118967Tollbooth - UnregulatedNONOYESNOCanada1
TSE:TDTDTD BankFinancial ServicesBanks - Diversified0.6862.0885.1412.0312.035.160.055.090.612443.160.141067Tollbooth - UnregulatedNONOYESNOCanada1
TSE:BNSBNSScotia BankFinancial ServicesBanks - Diversified0.7455.1550.329.759.755.660.076.530.636043.600.124768Tollbooth - UnregulatedNONOYESNOCanada1
TSE:BMOBMOBank of MontrealFinancial ServicesBanks - Diversified0.6580.2339.0111.5311.536.960.055.280.609244.240.090757Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CMCMCIBCFinancial ServicesBanks - Diversified0.69101.9634.3011.8611.868.600.065.730.679145.840.106067Tollbooth - UnregulatedNONOYESNOCanada1
TSE:NANANational BankFinancial ServicesBanks - Diversified0.6569.5723.3611.5811.586.010.044.080.472542.840.109467Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CWBCWBCanadian Western BankFinancial ServicesBanks - Regional0.6627.212.379.399.392.900.044.260.400041.160.097567Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:LBLBLaurentian BankFinancial ServicesBanks - Regional0.4728.631.2311.5711.572.470.065.590.647841.600.091325Tollbooth - UnregulatedNONONONOCanada1

Bottom Line

Great-West Lifeco is well-positioned to serve an increasingly dynamic marketplace through its innovative products and digital enhancements. It took GWO six years to start increasing the dividend after the financial crisis and the increases are barely above inflation. The yield makes it solely an income play and could be a good fit for a retirement portfolio but it seems the stock is in the dog house. Lifeco’s diversification strategies into other key markets and capital deployment should improve the quality of portfolios to advance growth. The company’s investments in digital tools and distribution is critical to address the needs of affluent and high net worth customer segments. Given its ability to generate ample free cash flows and maintain a decent growth rate, the company capable to increase its dividend payout at the same pace in the future as well.

Dividend Adjusted Chart by StockRover.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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