A Balance of Growth and Income for IAG

iA Financial Group is a leading insurance and wealth management company in Canada. The company manages nearly $190 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 a Canada wide 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. iA Financial’s comprehensive product offering and a vast distribution network should further support its organic growth.

Investment Data

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 in Canada, Industrial Alliance is well-positioned to benefit from the growing financial security needs of people. Today, people tend to live longer and need to make sure that their futures are financially secured. With the strength of its distribution network and wide range of products, the iA Group should benefit from this growing trend. 

iA Financial’s assets have grown at 13% CAGR in the last five years. Its premiums and deposits have also registered a growth of 10% CAGR during the same time. The company’s AUMA equals to nearly $190 billion and comprises of general funds, segregated funds, mutual funds, and others. The company has been expanding organically as well as through acquisitions into related businesses and geographies. 

iA Financial had a strong year in 2019 with premiums and deposits growing by 10% and AUMA increasing by 12% YoY. Sales growth was strong in individual and group savings products like segregated funds, guaranteed investment certificates, insured annuity contracts, and accumulation contracts; and Dealer Services and Special Markets Solutions divisions, Group Savings and Retirement and both US Operations divisions. iA is expecting 2020 growth to come from its organic initiatives like improvement in all 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. It is also investing in technology to improving efficiencies and provide a better client experience. 

Dividends

iA Financial is a Canadian Dividend Aristocrat with a dividend yield of 4.9%. It has delivered annual dividend increases averaging at 10% CAGR per annum over the last five years. The company last raised its dividend by 7.8% marking its sixth consecutive year of hike and has a very reasonable payout ratio of 30% at present. iA Financial’s dividend growth rate has been increasing at an impressive pace.

iA Financial is targeting to grow its EPS by at least 10% annually till 2022 which should comfortably support its dividend growth in the future. The company has a history of maintaining a reasonable payout ratio, sitting near 30% since the last decade. It is targeting its dividend payout ratio in the range of 25%-35%. A low payout ratio further indicates significant room for future dividend growth. The company has also indicated that share buyback will continue to be a critical component of its capital allocation and has announced the renewal of its NCIB, under which it may redeem, up to 5 million common shares over the next year.

iA Financial has compounded its earnings growth at a rate of 21% over the last decade and is witnessing solid momentum across its U.S. divisions, segregated fund sales in Canada, and retail insurance sales. The company has the financial strength and diversified operations to sustain ample cash flow for operations without the need for external funds. A strong business model and financial stability have helped the company score strong credit ratings from major rating agencies.

iA Financial’s 2020 EPS growth guidance is 11% which is expected to come organically. The company’s recent announcements to acquire IAS Parent Holdings, and acquisitions WGI Service Plan Division, WGI Manufacturing, and Lubrico Warranty are also expected to contribute to EPS growth. These acquisitions are expected to strengthen the company’s footprint in the vehicle warranties market in Canada and the U.S. The company estimates its solvency ratio to decrease in H1’ 2020 as a result of these acquisitions and will then remain slightly above its target range of 110% to 116%.

Competition

Industrial Alliance competes with leading Canadian insurance companies like Manulife, Sun Life Financial, Great West Life, and Intact Financial.

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’ key strengths.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYieldYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:RYRYRoyal BankFinancial ServicesBanks - Diversified0.6996.29104.3112.3812.387.780.044.490.555344.320.118567Tollbooth - UnregulatedNONOYESNOCanada1
TSE:TDTDTD BankFinancial ServicesBanks - Diversified0.7260.5383.5511.7311.735.160.055.220.612443.160.142367Tollbooth - UnregulatedNONOYESNOCanada1
TSE:BNSBNSScotia BankFinancial ServicesBanks - Diversified0.6857.1852.7310.1110.115.660.066.300.636043.600.122468Tollbooth - UnregulatedNONOYESNOCanada1
TSE:BMOBMOBank of MontrealFinancial ServicesBanks - Diversified0.6684.0941.1812.0812.086.960.055.040.609244.240.088357Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CMCMCIBCFinancial ServicesBanks - Diversified0.71102.5034.7411.9211.928.600.065.700.679145.840.105767Tollbooth - UnregulatedNONOYESNOCanada1
TSE:NANANational BankFinancial ServicesBanks - Diversified0.6967.0322.5211.1611.166.010.044.240.472542.840.111067Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CWBCWBCanadian Western BankFinancial ServicesBanks - Regional0.6926.392.309.119.112.900.044.400.400041.160.098977Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:LBLBLaurentian BankFinancial ServicesBanks - Regional0.5127.201.1710.9910.992.470.065.880.647841.600.094325Tollbooth - 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 positive earnings trajectory. iA Financial has indicated that the COVID-19 pandemic could have a material impact on it financial results. However, the company’s financial position and risk management programs should help mitigate the impacts related to the pandemic.

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.