Dividend-growth investing if one of my favourite investment strategies out there. If you’re a long-term investor who isn’t close to retirement age, then you may want to consider picking up some fundamentally strong businesses with promising histories of consistent dividend increases.
For a younger investor, a high-yielding stock may seem tempting now, but you’ll probably be sacrificing capital gains. Utilities and REITs are normally low-growth industries, and they pay out a huge chunk of their free cash flow. If you’re 20 years or more away from retiring, then you should probably opt for a higher-growth play, so you can maximize your long-term returns.
With dividend-growth stocks, you get the best of both worlds — the potential for high capital gains and a future high yield — but there’s a catch. You’ve got to be a true long-term investor; otherwise, you may not get either. While you may obtain capital gains over the short to medium term, you definitely won’t get the high yield you were promised in such a short time span.
Dividend-growth investing is like buying a high-yield stock for yourself in the future while still being able to reap the rewards of stock price appreciation. For those who can afford to sacrifice dividend payments today for a lot more in the future, then you should consider dividend-growth investing today.
Intact Financial Corp. (TSX: IFC) is Canada’s leader when it comes to property and casualty (P&C) insurance. The company has captured approximately 17% of the Canadian P&C market.
Looking back at the last decade, Intact has increased its dividend by a generous amount on a consistent basis, even during the Financial Crisis. If you’d bought Intact a decade ago and held to this date, then your dividend would have more than doubled. The payout ratio has been kept around the 50% level, so investors looking for stability and room for future growth will do very well by holding on to shares of IFC.
Earlier in the year, Intact announced its plans to acquire OneBeacon Insurance Group, Ltd. for $2.3 billion. The acquisition will beef up Intact’s U.S. presence, which will support further dividend hikes in the coming years.
Bottom line
Intact currently pays a 2.65% dividend yield, which may not seem like much, but over the next few years, this dividend will grow by leaps and bounds. Shares of IFC trade at a 2.2 price-to-book multiple and a 1.5 price-to-sales multiple, both of which are relatively in line with the company’s five-year historical average multiples of 2.1, and 1.3, respectively.
Shares look fairly priced, so investors keen on getting a non-bank financial dividend-growth stock should strongly consider adding IFC to their radars with the intention of buying on any dips.
Stay smart. Stay hungry. Stay Foolish.
