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.