iA Financial – A Balance of Growth and Income

iA Financial Group is a leading insurance and wealth management company in Canada. The company manages nearly $185 billion in assets and has over 4 million client accounts. It maintains a solid share in the individual insurance market.

iA Financial offers a broad range of savings, retirement, group benefits, defined contribution, and benefit plans, insured annuities, etc. to a diversified base of clients comprising individuals, companies, and organizations. It also distributes creditor insurance products, car loan financing, and property & casualty products through its Canadian distribution network. The company derives 97% of its earnings from Canada and 3% from the US. 

iA operates through individual insurance (52% of 2019 net income), individual wealth management (25%), group insurance (9.5%), group savings and retirement (4.5%), U.S. operations (8%). It has a 100% ownership in Industrial Alliance Insurance and Financial Services. Industrial Alliance reaches its clients through an extensive Canada-wide multi-channel distribution network consisting of more than 25,000 representatives.

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Investment Data
 

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Revenue Growth & Market Exposure

With more than a century old existence, Industrial Alliance has developed the necessary financial acumen and a portfolio of products and solutions to cater to the diverse financial needs of its clients.

The company helps clients make informed decisions regarding insurance and finances at the right stages of their lives. As one of the largest insurance and wealth management groups, wide distribution network, and a variety of financial products, Industrial Alliance is well-positioned to benefit from the growing financial security needs of people.

iA Financial’s assets have grown at ~10% CAGR in the last five years. Its premiums and deposits have also registered a growth of more than 5% CAGR during the same time. The company’s AUMA comprises general funds, segregated funds, mutual funds, and others. Its two US business divisions – individual insurance and dealer services are each poised to register a sales growth of ~7% annually.

iA Financial had a strong third quarter with premiums and deposits up to $3.9 billion increasing by 39% YoY due to the contribution of the Group Savings and Retirement and Individual Wealth Management business lines. The AUMA also increased by 3% supported by net fund entries and market growth.

The company witnessed good performance, especially in the Individual Insurance, iA Auto and Home businesses. iA is focusing on improving business lines and opportunities in Canada-wide insurance and wealth management distribution networks. The company has the financial flexibility to grow organically and make new acquisitions.

The IAS acquisition has resulted in an increase in the expected profit on in-force in US operations. It is also investing in technology to improve efficiencies and provide a better client experience. iA is well-positioned to gain in the middle market.

Dividends

iA Financial is a Canadian Dividend Aristocrat with a dividend yield of 3.3%. It has delivered annual dividend increases averaging 11% CAGR per annum over the last five years.

The company last raised its dividend by 7.8% in February 2020, marking its sixth consecutive year of a hike, and has a very reasonable payout ratio of 34% at present. iA Financial has a history of maintaining a reasonable payout ratio, sitting near 30% since the last decade.

A low payout ratio further indicates significant room for future dividend growth. iA Financial’s dividend growth rate has been increasing at an impressive pace. However, there was no buyback in Q3 2020 as buybacks and dividend increases remained on hold.

iA Financial has compounded its EPS growth at a rate of 9% over the last decade and is witnessing momentum across its U.S. divisions, segregated fund sales in Canada, and retail insurance sales. Sales at Canadian individual insurance is expected to grow at 5% annually.

The company has the financial strength and diversified operations to sustain ample cash flow for operations without the need for external funds. The company’s acquisition of IAS is expected to have a positive contribution to EPS in 2021. iA is targeting EPS growth of at least 10% annually. It is financially robust with a solvency ratio of 125%. A strong business model and financial stability have also helped the company score strong credit ratings.

iA Financial (IAG) historical yield
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Competition

Industrial Alliance competes with leading Canadian insurance companies like Manulife, Sun Life Financial, Great-West Life, and Intact Financial.  iA is a Canadian leader for creditor insurance and P&C products.

The company faces intense competition from insurance companies, banks, asset managers, mutual fund companies, financial planners, and other service providers. Industrial Alliance also faces constant headwinds from rapidly evolving technology, which has led to the emergence of several new entrants who use new and low-cost digital-based business models such as insurtechs and robo-advisors.

A huge distribution network, an extensive geographic presence, and a wide range of financial products are Industrial Alliance’s key strengths.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYieldYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:RYRYRoyal BankFinancial ServicesBanks - Diversified0.61125.96181.1012.8012.809.980.033.430.438344.320.102867Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:TDTDTD BankFinancial ServicesBanks - Diversified0.6887.09159.2211.2211.226.720.043.630.406243.160.128677Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:BNSBNSScotia BankFinancial ServicesBanks - Diversified0.6979.3797.9012.7912.796.270.054.540.428943.600.102268Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:BMOBMOBank of MontrealFinancial ServicesBanks - Diversified0.55126.9382.7013.9313.9310.450.033.340.464744.240.075857Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CMCMCIBCFinancial ServicesBanks - Diversified0.60144.7164.7712.2012.2012.670.044.040.491645.840.086768Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:NANANational BankFinancial ServicesBanks - Diversified0.6791.6031.2612.3412.347.750.033.100.379842.840.099467Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:CWBCWBCanadian Western BankFinancial ServicesBanks - Regional0.6734.733.0510.9310.933.260.033.340.365041.160.093277Tollbooth - UnregulatedYESYESYESNOCanada1
TSE:LBLBLaurentian BankFinancial ServicesBanks - Regional0.3543.241.8711.7911.794.190.043.700.509641.600.037013Tollbooth - UnregulatedNONONONOCanada1

Bottom Line

iA Financial’s growth has been remarkable since it went public. It is well-positioned to gain from the growing demand for retirement and asset management solutions and has a huge potential to capture market share in one of the largest industries in Canada. The company’s U.S. operations and individual wealth are its big growth drivers demonstrating a positive earnings trajectory. iA is successfully growing two capital-light businesses in the US.

IAG vs TSX vs SP500
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iA Financial (IAG) historical PE
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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.