Have you ever wondered what a buy-and-hold investment that returned almost 11% per year can do? Blue-chip stock Sun Life Financial (TSX: SLF) stock has done exactly that since 2010. Specifically, it would have turned an initial investment of $5,000 into about $20,305, or four times the original investment if dividend reinvestment was turned on.
In the period, the $5,000 investment received eligible Canadian dividends of $5,804 in total. So, the investor would have gotten their entire investment back with $804 extra if they had held the stock in their Tax-Free Savings Account (TFSA).
Approximating with the Rule of 72, the dividend stock would have doubled its common stockholders’ money every 6.6 years or so, which is not bad at all. After all, it beat the Canadian stock market return of about 7.3% per year (also with dividend reinvestment) in the period by a return of 3.5% per year.
Without dividend reinvestment, the $5,000 SLF investment would have returned almost 8.8% per year and only $4,102 of dividends in total. In other words, investors would have gotten 82% of their investment back if the shares were held in a TFSA. In contrast, the Canadian stock market would only have returned 4.3% per year without dividend reinvestment.
Get a reliable dividend
Sun Life stock’s dividend history is encouraging. It has maintained or increased its common stock dividend every year since at least 2003. For your reference, its five-, 10-, 15-, and 20-year dividend-growth rates are 9.6%, 6.7%, 5.0%, and 8.3%, respectively.
Its lower dividend growth for the 10- and 15-year periods require some explanation. Specifically, it maintained the same dividend between 2009 and 2014. The initial dividend freeze likely was related to the global financial crisis at the time. The company might have observed the macro environment in the subsequent years until it finally thought it was safe to start increasing dividends again in 2015.
Sun Life last raised its common stock dividend by 4.2% in May. This doesn’t seem like a lot, but investors should note that it has a habit of increasing its dividend every six months or so. So, other perspectives on the dividend growth would be to view its year over year and trailing 12-month dividend hikes, which were 8.7% and 12.5%, respectively.
The life and health insurer’s dividend remains sustainable, with an estimated payout ratio of about 47% of earnings this year. Furthermore, it has a large buffer of retained earnings that could pay out about seven years of dividends.
What if you invested $5,000 into Sun Life stock today?
At $69 and change per share, the analyst consensus 12-month price target, as shown on Yahoo Finance, is $73.43. The company’s earnings are anticipated to persistently grow for the long haul. It’s expected to grow its earnings per share by about 7% over the next three to five years, which implies a five-year price target of $102.99. Combined with the dividend yield of 4.3% at writing, it suggests an estimated total return of approximately 12.6%, which would not be bad for a defensive dividend stock.
