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

Target. Stand out from the crowd
Dividend Stocks

RRSP Pension: 2 Dividend Stocks to Buy on the Latest Dip

These high-yield TSX stocks look cheap right now for RRSP investors.

Read more »

bulb idea thinking

The Smartest TSX ETF to Buy With $1,000 Right Now

Forget the TSX 60 or the TSX Composite. I prefer the TSX Dividend Aristocrats.

Read more »

Canada Day fireworks over two Adirondack chairs on the wooden dock in Ontario, Canada

CPP Benefits Not Enough? This Top Dividend Stock Can Help Fund Your Retirement

Canadian retirees can look to supplement their CPP payout with quality dividend stocks such as Headwater Exploration.

Read more »

grow dividends
Stocks for Beginners

Why Cargojet Stock Is Surging Past 52-Week Highs

Cargojet (TSX:CJT) stock surged by 17% after a new deal was announced, with upgrades coming in as well for the…

Read more »

protect, safe, trust

It’s Time to Defend Your Wealth: 3 Top Stocks to Help Keep What’s Yours

For those looking to defend your wealth against what appear to be robust oncoming macro headwinds should consider these stocks.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

Safe and Sound Stocks for Canadians: My Top 5 Choices

Five safe stocks to buy on a market pullback.

Read more »

Financial technology concept.

Couche-Tard Stock: Today Is a Huge Buying Opportunity

Alimentation Couche-Tard (TSX:ATD) stock looks like a steal after its latest unwarranted plunge into a correction again.

Read more »

A stock price graph showing growth over time
Metals and Mining Stocks

Why Cameco Stock Soared 23% This Year

Cameco stock continues to ride high on strong supply/demand fundamentals and growing momentum in the nuclear industry.

Read more »