Sitting on Cash: Invest $25,000 in This Dividend Stock Instead to Get $82,052 in a Decade

Here’s a top dividend stock that is well worth snatching up for Canadians who have some extra cash to burn.

| More on:
money cash dividends

Image source: Getty Images

Back in February 2021, Canadian Imperial Bank of Commerce released a report that was co-authored by its deputy chief economist Benjamin Tal. The report revealed that Canadians who had reduced spending during the COVID-19 pandemic at the start of this decade could be sitting on more than $100 billion in cash. Spending habits have evolved over the past two years, especially as soaring inflation has weighed on consumer wallets.

Today, I want to look at a top dividend stock that is well worth snatching up for Canadians who still have some extra cash to burn. Let’s jump in.

Canadian investors: Why you shouldn’t hold cash in this climate

Investors should not be so eager to sit on their laurels after the worst of the pandemic. Inflation soared to stunning new heights in late 2021 and throughout 2022, spurring radical action from central banks in the developed world. Your cash is bleeding, as inflation soared to as high as 8.13% in Canada in June and was still 5.2% in February 2023.

Canadian investors who want a dependable dividend stock should look to Sun Life Financial (TSX:SLF). This Toronto-based insurance and financial services company provides savings, retirement, and pension products around the world. Its shares have dipped 2.1% in 2023 at the time of this writing. The stock is down 11% year over year.

Here’s why I’m excited about Sun Life’s future

Sun Life has seen growth slow for its major businesses in North America and Europe. However, its footprint in Asia offers major promise for the future. The growth of the Asian middle class means that there will be a flood of new consumers in the insurance and financial services space. Indeed, the World Economic Forum (WEF) recently estimated that two billion Asians were members of the middle class in 2020. That number is set to increase to 3.5 billion by 2030.

This company released its fourth-quarter (Q4) and full-year fiscal 2022 earnings on February 8, 2023. In Q4 2022, Sun Life delivered underlying net income of $990 million and underlying earnings per share (EPS) of $1.69 — up from $898 million and $1.53 in Q4 fiscal 2021. For the full year, insurance sales rose to $4.32 billion compared to $3.67 billion in the prior year.

Overall, Sun Life put together a strong 2022 on the back of its Canadian and United States business. Meanwhile, insurance sales in Asia grew 9% but were held back by poorer results in China and Hong Kong. With luck, Sun Life’s insurance and wealth businesses will see improvement in Asia as the worst of the pandemic is behind us.

Sun Life: Where is this dividend stock headed?

Shares of Sun Life closed at $27.72 on March 28, 2013. This dividend stock was worth $62.10 as of close on March 27, 2023. That represents a 124% jump over a 10-year period and a compound annual growth rate (CAGR) of 8.4% over the decade. Meanwhile, Sun Life offers a quarterly dividend of $0.72 per share. That represents a 4.6% yield.

Sun Life has achieved an annual dividend-growth rate of 9.6% since the start of 2020, increasing its quarterly dividend from $0.55 in the beginning of 2020 to $0.72 at the time of this writing. I’m going to plug in a very conservative dividend-growth rate of 5% over the next decade.

For our hypothetical, we were able to buy 402 shares of Sun Life for $24,964.20. We are going to apply a dividend-reinvestment plan (DRIP) over the next decade. Assuming a CAGR of 8.4% and a conservative dividend-growth rate of 5% that investment would be worth $82,052.40 at the end of the next 10-year period. Without reinvesting our dividends, that final value would shrink to $71,215.87.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

potted green plant grows up in arrow shape
Dividend Stocks

Best of Both Worlds: 3 Growth Stocks That Also Pay Dividends

Dividend stocks are great until a downturn ends. But luckily, these three dividend stocks also offer a massive amount of…

Read more »

data analyze research

2 Stocks to Invest in a Sideways Economy

Low-volatility dividend stocks from Canada's utility sector can be great picks for stagnant times.

Read more »

Payday ringed on a calendar
Dividend Stocks

Monthly Passive Income: 2 Top TSX Dividend Stocks to Buy in June 2023

Here are two of the best TSX monthly dividend stocks you can buy in June 2023.

Read more »

Female hand holding piggy bank. Save money and financial investment
Dividend Stocks

RRSP Wealth: 2 Great Canadian Dividend Stocks to Buy in June 2023

Top TSX dividend stocks are now on sale.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

Retirees: 2 TSX Dividend Stocks That Reliably Pay You Cash

With strong underlying businesses, high-yielding dividends, and stable cash flows, these two TSX stocks can be excellent investments to consider.

Read more »

Road signs rerouting traffic

TSX Stocks in the Transportation Industry: Which Ones Are Worth Your Investment?

Transportation stocks trading on the TSX are well positioned to deliver market-beating gains to investors in 2023 and beyond.

Read more »

sad concerned deep in thought
Dividend Stocks

Better Buy for TFSA Passive Income: Telus Stock or TD Bank? 

Your passive income depends on the dividend yield you lock in. Telus and TD Bank are good investments, but which…

Read more »

Dividend Stocks

Turn a $10,000 Investment Into $844 in Cash Every Year

The power of compound interest from regular investments in quality dividend stocks can deliver solid long-term returns and make you…

Read more »