Canadian investors want passive income, and they want a lot of it. What’s more, they want that income to be practically guaranteed, if not absolutely so. Yet that’s leading many to get away from the stock market, and I believe that’s a mistake.
There continue to be some strong opportunities for investors willing to get in on a dividend stock due for major growth. In fact, there are some already growing, and still offering a higher dividend yield than normal.
So today, let’s look at one sector offering investors the opportunity for more growth, with passive income immediately on hand.
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The sector
This year, analysts are remaining a bit cautious when it comes to most life insurance companies. These passive income stocks have been strong performers over the last two years. However, that growth should take a step back in 2024.
Why? Many of these dividend stocks are trading at valuations far higher than their historical averages. They now provide a larger premium on a price-to-book value basis. What’s more, with the Bank of Canada set to decrease interest rates potentially as early as April, this could see life insurance companies lose out on income through private credit investments.
Even so, most of these companies should still see double-digit growth in 2024. The biggest risk, for now, is the rebound of Canadian banks. These companies may have outperformed the Big Six Banks last year, but a rebounding banking sector could be hard to beat in 2024.
1 stock to consider
The thing is, these stocks still trade at a discount. The passive income stocks in the life insurance sector trade an average of 1.6 times book value, only slightly higher than the 10-year average of 1.5 times. But of them all, one of the top outperformers of the near future should be iA Financial (TSX:IAG).
IAG stock is currently up 10% in the last year alone. However, it continues to trade in value territory at just 8 times earnings as of writing. It also trades lower than the average lifeco in terms of book value, at just 1.4 times book value.
The dividend stock offers a 3.42% dividend yield as well, which is higher than its five-year average of 3.23%. With a payout ratio of just 25%, that’s a safe dividend no matter what the future brings. What’s more, it would take just 39% of its equity to pay off all its debts.
More to come
The thing is, IAG stock has grown even more in the last few months. Since bottoming out in October, shares are up 19% in that time. And that looks like it’s set to continue. Analysts believe the stock should now easily pass the three-digit line, and outperform the life insurance sector.
Earnings came in better than expected during the third quarter in most segments, and its capital remains strong. IAG stock holds $1.6 billion in deployable capital, putting it in a strong position for dividend increases or buybacks.
Controlling expenses will likely continue to be a focus for the passive income stock in the coming year. This will then help the future of the company when the economy shows signs of strength once more. In 2024, analysts believe there will be “aggressive buybacks,” financed organically. And with an acquisition on the books as well, any car warranty or property portfolio issues won’t dampen performance.
