IGM Financial Inc. (TSX:IGM) has a 5% dividend yield plus capital appreciation upside
Capital Ideas Media | November 12, 2021 | SmallCapPower: Given the volatile equity market sessions over the past week, particularly involving tech stocks, today’s idea can be considered ‘safer’ but with solid upside potential.
(Originally published on Capital Ideas Media on May 11, 2021)
[Editor’s Note: Shares of IGM Financial have climbed 21% since Capital Ideas wrote about the company six months ago]
IGM Financial Inc. (TSX:IGM) is one of Canada’s largest wealth/asset management and financial planning companies, with about $253 billion in total assets under management and advisement. IGM’s majority (62.1%) owner is Power Corporation of Canada (TSX:POW).
IGM’s divisions include well-known, established brands such as IG Wealth Management (which many Canadians will know as Investors Group) and Mackenzie Investments. In total, the IGM Financial group of businesses has the #2 market share in mutual fund assets under management in Canada.
We expect IGM to be a big beneficiary of the ‘Great Wealth Transfer’, in which as much as US$68 trillion will change hands between various generations over the next 25 years, according to Cerulli Associates.
During the past week, the Company reported a 25% year-over-year increase in its Q1 earnings per share to $0.85 (a record for its first quarter) as well as record first-quarter net inflows of $2.2 billion and record high assets under management and advisement.
Also, in what can be considered a big bonus for its shareholders, IGM Financial owns a 36% stake in the Wealthsimple Technologies Inc.
Wealthsimple, which is considered the Canadian version of Robinhood, has more than two million users and offers services such as cryptocurrency trading, tax services, automated investing and even commission-free stock trading.
Last week, Wealthsimple announced it raised a total of C$750 million from venture capital firms and private investors including rapper Drake and actor Ryan Reynolds, valuing the Toronto-based online money management platform at about C$5 billion.
“With this latest funding round, IGM will write up the valuation by $900 million ($3.78 per share) to $1.45 billion,” said Desjardins Securities analyst Gary Ho.
“Concurrent with the secondary offering, IGM will receive $295 million in proceeds ($260 million after tax), bringing down its stake to 23 per cent with a value of $1.15 billion,” Mr. Ho added.
As a result, the Desjardins Securities analyst increased to his 2021 and 2022 earnings per share estimates to $3.83 and $4.08, respectively, from $3.81 and $4.06 and raised his target price on IGM stock to $48 per share from $44.
We like IGM mainly because of its current 5% dividend yield but also see yearly capital appreciation potential with its growing wealth management business and investments in companies such as Wealthsimple.
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