Olympia Financial Group Navigates Headwinds in Q1 2025: A Resilient Dividend Story?

Olympia Financial Group Inc. (TSX: OLY) reported its first-quarter 2025 financial results on May 8, revealing a mixed performance amid macroeconomic challenges. While net earnings dipped 6% year-over-year to $5.4 million, the Toronto-based trust and financial services firm demonstrated resilience in its core operations, particularly in service revenue growth. The results highlight a balancing act between expanding client-driven fee income and headwinds from lower interest rates, all while maintaining a steady dividend payout.

Key Financial Takeaways
- Net Earnings: Total net earnings fell to $5.4 million from $5.74 million in Q1 2024, driven by declining trust-related income and rising operational costs.
- Revenue: Total revenue remained nearly flat at $25.39 million, down less than 1% from $25.46 million, with service revenue increasing 1% to $12.04 million.
- Trust and Interest Income: This segment declined 2% to $13.35 million due to lower interest rates on trust fund placements.
- Expenses: Direct and administrative costs rose 1% to $17.17 million, primarily from IT infrastructure investments.
- EPS: Basic and diluted earnings per share fell 6% to $2.24, down from $2.39 in the prior year.

Growth in Service Revenue Signals Client Momentum
The standout performance came from service revenue, which grew 1% year-over-year. This segment, fueled by increased monthly and transaction fees, reflects Olympia’s success in expanding its client base. With over 200,000 registered plan accounts administered by its subsidiary, Olympia Trust Company, the firm continues to benefit from demand for self-directed retirement solutions. This growth contrasts with the drag on trust income from Canada’s declining interest rate environment, which has reduced returns on trust fund placements.

The Interest Rate Conundrum
The 2% decline in trust, interest, and other income underscores the vulnerability of Olympia’s business model to macroeconomic factors. Lower interest rates have reduced the yield on trust assets, a trend that could persist if the Bank of Canada maintains its current stance. Such data would help investors assess the correlation between rate shifts and Olympia’s profitability.

Cost Management and Dividend Sustainability
Despite rising IT expenses, Olympia maintained its monthly dividend of CAD 0.60 per share, totaling CAD 5.4 million annually. This payout represents a 2025 yield of ~3.2% based on its May 8 stock price of CAD 60. However, the 6% drop in EPS raises questions about future dividend sustainability. Management’s confidence in maintaining payouts suggests they expect cost discipline and client growth to offset near-term pressures.

Subsidiaries as Diversification Anchors
Olympia’s subsidiary structure provides operational diversification:
- Olympia Trust Company: Operates in nine Canadian provinces, offering registered plan administration and corporate trust services.
- Olympia Currency and Global Payments: Benefits from cross-border trade and travel demand.
- Olympia Benefits Inc.: Supplies health plans and IT solutions to exempt market dealers, a niche market with steady demand.

This mix reduces reliance on any single revenue stream, though the trust division’s sensitivity to interest rates remains a key risk.

Investor Sentiment and Technical Outlook
While Olympia’s Q1 results were modest, external analysts remain optimistic. Spark Capital reiterated an “Outperform” rating, citing attractive valuations and strong fee-based revenue streams. However, the stock has underperformed the TSX Financials Index over the past year, falling ~8% versus the index’s 5% rise. This divergence may reflect investor wariness about interest rate risks or broader sector headwinds.

Conclusion: A Hold with Dividend Appeal
Olympia Financial Group’s Q1 results paint a picture of a firm navigating challenging conditions with mixed success. While service revenue growth and dividend stability are positives, the drag from interest rates and rising costs limits upside potential. Key considerations for investors include:

• Interest Rate Outlook: If Canadian rates stabilize or rise, trust income could rebound.
• Client Acquisition: Continued growth in registered plan accounts could offset macroeconomic headwinds.
• Valuation: At 12.5x trailing P/E, OLY trades below its five-year average of 15x, suggesting some discount to its historical premium.

The company’s dividend, yielding ~3.2%, offers near-term income appeal, but long-term investors must weigh its exposure to interest rate cycles. For now, Olympia appears to be a “hold” with defensive characteristics, suitable for portfolios seeking steady returns in a low-growth environment.

Disclosure: The author holds no position in Olympia Financial Group Inc. as of publication.