Canadian banks.
They’re a staple of many retirees’ portfolios.
It’s quite likely that you’re invested in Canadian bank stocks whether you know it or not. They make up about 31% of the TSX Composite Index, and are among the top holdings of Canadian index funds. If you hold a TSX index fund, congratulations: you are a bank investor!
Despite how ubiquitous Canada’s big banks are, they aren’t the only game in town. Many other TSX financials have desirable qualities. Some, such as Brookfield, have even outperformed the banks in recent decades.
One fertile hunting ground to go looking for stocks in is insurance. Insurance companies go through boom and bust cycles, sometimes in tough markets they get outrageously cheap. In this article, I will explore three Canadian insurance stocks that may be better buys than the big banks.
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Sun Life
Sun Life Financial (TSX:SLF) is a Canadian insurance company with a 4.4% dividend yield. It offers many different types of insurance, including:
- Life insurance.
- Health insurance.
- Mortgage protection insurance (Not the same as mortgage insurance, as it goes to your family or other beneficiaries rather than the bank in the event that you pass away).
- And more.
Sun Life’s insurance products are squarely in the category of “life and health insurance,” which is the relatively “low risk” part of the insurance business, with infrequent and predictable claims. So, Sun Life doesn’t have to worry about hurricanes, fires, or armed robberies. It should be a relatively stable insurer compared to some out there.
Indeed, steady would be a good way to characterize Sun Life’s business. Since 2014, its revenue has increased from $10 billion to $21 billion, and its earnings have increased from $1.8 billion to $3.2 billion – both growing at a pretty “regular” pace. That’s a feat that not even the big banks could pull off; though they’ve grown in the same period, their profit took a big dip in 2020. So Sun Life has been a very steady and dependable financial stock with a very nice dividend.
Fairfax
Fairfax Financial Holdings (TSX:FFH) is a Canadian insurance company controlled by legendary value investor Prem Watsa. Its investment portfolio is similar to Berkshire Hathaway’s, in that it contains more equities than usual. The company grew its revenue by 14.5% and earnings by 230% in the most recent fiscal year. Its earnings growth rate over the last five years has been 71% per year! That’s a pretty impressive growth rate, though likely driven by unrealized stock market gains, like Berkshire’s recent massive earnings beat.
FFH’s dividend yield (1.3%) is not very high, but it has been rising over time. Overall, this company looks like a promising investment.
Great-West Lifeco
If you have a little more appetite for risk and a love of high dividends, you might want to take a look at Great-West Lifeco (TSX:GWO). It’s much cheaper and higher yielding than Sun Life or Fairfax, albeit with a rockier earnings history. Its revenue and earnings are down over both three- and five-year periods, while the same figures are up by tiny percentages over the last 10. The good news is that its revenue shot up dramatically in the last 12 months, and its long-term earnings decline appears to be mainly due to the company winding down non-core business units. Earnings from the core insurance business have been rising.
Great West Lifeco’s most recent quarter was pretty good, with earnings up 9%. Adjusted earnings beat expectations by 2.9%. Overall, we’re seeing good things from this company.
