A search for the company by the name of Genworth will turn up two different results in most financial searches. The one with a greater U.S. presence being Genworth Financial Inc (NYSE:GNW) and the one with a greater Canadian presence being Genworth MI Canada. Despite sharing a similar name, these two stocks have very different characteristics when it comes to how they fit in an investor’s portfolio. Here we will examine the differences between the two Genworths in an effort to highlight potential risks and rewards.
Big discount, no dividend
Looking at the valuations behind Genworth Financial the stock appears extremely cheap. Shares trade at only 0.3 times tangible book value reflecting a large discount even when compared to other insurance companies. Even the bailout poster child, American International Group Inc (NYSE:AIG), trades at a higher valuation of 0.6 times tangible book.
As the recovery takes hold and the housing market begins to rebound, Genworth Financial’s shares should benefit from both increased profits and reduced investor fears about the industry in general. It is also important to note that Genworth Financial has divisions involved in wealth management and various other types of insurance. While mortgage insurance is still a key part of the business, diversification into multiple segments gives Genworth Financial a better chance at riding out downturns in the mortgage market. As of now Genworth Financial Inc (NYSE:GNW) does not pay a dividend, although it may reinstate one in the future. Investors in the hunt for dividends should read on about the other Genworth.
Small discount, sizable dividend
Living in a global market, sometimes the best returns are found internationally. For this example, we will look at Genworth MI Canada. This Genworth is much more focused on mortgage insurance but conducts business in Canada where the housing collapse was not nearly as bad and the financial markets are more tightly regulated.
Genworth MI Canada’s chart only runs back a few years because it was spun off from Genworth Financial in an IPO in mid-2009. This makes it difficult to value Genworth MI Canada in a thriving economy by comparing it to past charts. To fairly estimate Genworth MI Canada’s value we will have to look at the current numbers.
Trading at 0.8 times tangible book, this Genworth is more expensive on this basis than Genworth Financial Inc (NYSE:GNW). However, Genworth MI Canada trades at only five times earnings and pays a 5.3% dividend. This dividend it notably higher than most American financials giving Genworth MI Canada and edge in yield for income investors.
With foreign listed companies there are additional considerations to keep in mind. While shares of the company are as liquid as any other stock on the Toronto Stock Exchange, American listed shares have a lower volume. This should not drive away investors who are bullish on Genworth MI Canada in general, but buyers of American listed shares would be well advised to set limit orders rather than market orders. Dividends from Canada are also subject to a withholding tax that is usually 15%. However, since each individual’s tax situation is unique and I am not licensed to advise on the subject of taxes, potential investors should see their tax professional if they have tax related questions.
Discounts and dividends
Despite originating from the same company, these two Genworths offer investors two different options for generating income or playing a rebound in the mortgage market. Both stocks are trading below their tangible book values offering a value play for Genworth investors. As the housing market recovers, Genworth Financial Inc (NYSE:GNW) is likely to benefit more due to its higher exposure to the beaten down U.S. mortgage market. But Genworth MI Canada could also benefit from a stronger economy while paying a healthy dividend during the recovery. In the end, it comes down to each investor’s overall strategy. Deep value investors will likely prefer Genworth Financial while income investors would be partial to Genworth MI Canada. I am personally bullish on both and may make a decision about which one(s) to invest in over the next couple months.
The article A Tale of Two Genworths originally appeared on Fool.com and is written by Alexander MacLennan.
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