The Canada Pension Plan, or CPP, is a monthly taxable benefit that aims to replace a portion of your income in retirement. The average age to begin the CPP payment is 65. But you can start receiving the payments at the age of 60 or delay them till you are 70.
According to the official website of the Government of Canada, the maximum CPP payout for a 65-year-old in 2024 is $1,364.60, while the average payout is well below $1,000. It’s evident that Canadians should not just depend on the CPP in retirement if they want to lead a comfortable life. Retirees should instead create other streams of passive income and supplement the CPP.
One low-cost way is by investing in dividend growth stocks such as Definity Financial (TSX: DFY). Let’s see why.
Is Definity Financial stock a good buy right now?
Valued at $4.4 billion by market cap, Definity Financial is the parent company to some of Canada’s innovative property and casualty insurance brands, including Sonnet Insurance, Economical Insurance, Family Insurance Solutions, and Petline Insurance.
Part of the insurance sector, Definity Financial, is fairly recession-resistant. Shares of the company went public in late 2021 and have since returned close to 40% to shareholders, easily outpacing the broader markets.
Definity Financial reported a 9% growth in gross written premiums in the third quarter (Q3) of 2023 due to steady market conditions in verticals such as personal property and commercial insurance.
It ended Q3 with a combined ratio of 102.5%. A combined ratio measures the profitability of insurers. It is defined as the sum of losses and operating expenses measured as a percentage of the premium earned by the insurer, and a lower multiple is preferred.
Definity Financial attributed catastrophe losses impacting personal property amid storms and wildfires to a high combined ratio in Q3. Moreover, Definity Financial’s operating income narrowed to $17.6 million in Q3, compared to $45.8 million in the year-ago period.
Definity Financial pays a yield of 1.44%
Definity Financial pays shareholders a quarterly dividend of $0.138 per share, which translates to a forward yield of 1.44%. While the dividend payout may not be too attractive, Definity Financial is growing at an enviable pace, which should boost the effective yield over time. For instance, the company raised its dividend by 10% in 2023.
Analysts tracking the TSX stock expect sales to rise from $3.25 billion in 2022 to $4 billion in 2024. Its adjusted earnings are forecast to expand from $2.04 per share to $2.65 per share in this period.
Priced at 14.4 times forward earnings, DFY stock is quite cheap, given earnings are forecast to surge by more than 30% annually in the next five years.
Definity Financial continues to deploy capital to build a robust insurance broker platform, allowing it to diversify earnings with a recurring income stream.
During its Q3 earnings press release, Definity Financial’s chief executive officer, Rowan Saunders, emphasized, “Our efforts to diversify and strengthen the earnings profile of the business were evidenced by strong commercial insurance results and a growing contribution from our insurance broker platform.”
Analysts remain bullish and expect shares to surge over 15% in the next 12 months.
