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When we look back five years from now, our bet is that this current $4 annual dividend payout will be more like $7.

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“Best Buys Now” Pick #1:

Intact Financial (TSX:IFC)

There are cheaper insurance companies. There are more expensive ones. But when it comes to the business of insurance, I’m not sure there are better insurance companies.

Certain “tells” exist that we can zoom in on when it comes to identifying great companies. Intact Financial (TSX:IFC) covers many of them. We’ll pick one — dividend growth — to illustrate.

Indeed, a company that can steadfastly increase its dividend year in and year out for well more than a decade is clearly in a position of privilege when it comes to its competitive perch. Zero-moat or flash-in-the-pan situations just can’t pull this off, despite their best efforts.

Intact, which at the time was known as ING Canada, first introduced its dividend in 2004. Its first full-year payout in 2005 amounted to $0.65 per share, and the dividend yield was ~2.0%.

Eighteen years later, and guess what? Intact currently yields ~2.0%.

What has changed is that underlying dividend payment. Today, Intact is poised to pay its shareholders $4 per year thanks to raising the dividend payment every year without fail at an average rate of 11.7%.

A ~2% yield on a $0.65 annual dividend payment represents a stock price of $32.50.

A ~2% yield on a $4.00 annual dividend payment represents a stock price of $200, which is essentially where Intact trades today.

While maintaining — and expanding, even — its dominant property and casualty insurance business in Canada, since the initiation of the dividend, Intact has set the table for the next 20 years of its growth. Geographic expansion has occurred by way of acquisition, and while the company continues to gobble up market share and beat the pants of the competition on its home field in Canada, increasingly, we expect a similar dynamic to emerge from its beachhead positions in the U.K and the U.S.

To be sure, this is a relatively slow burn and a company best left to its own device in a corner of your portfolio. But when we look back five years from now, our bet is that the current $4 annual dividend payout will be more like $7, and the company will continue to yield ~2.0%. That means the stock will be in the neighborhood of $350 for just about the most worry-free 75% return — not including dividend payments along the way — as you can hope to achieve.

Intact’s insurance offering helps its customers sleep easy. Same goes for investing in Intact’s stock.

“Best Buys Now” Pick #2

Redacted

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Iain Butler has no position in any of the stocks mentioned. The Motley Fool recommends Intact Financial. The Motley Fool has a disclosure policy.

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