Beyond Canadian Bank Stocks: 3 Insurance Plays With Nice Dividends

Insurance stocks like Sun Life Financial (TSX:SLF) often have high yields.

| More on:
protect, safe, trust

Image source: Getty Images

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.

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has positions in Berkshire Hathaway and Brookfield. The Motley Fool has positions in and recommends Fairfax Financial. The Motley Fool recommends Berkshire Hathaway, Brookfield, and Brookfield Corporation. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

This 8% Dividend Stock Pays Cash Every Month

Earn monthly cash of $154 with this 8% dividend stock.

Read more »

oil tank at night
Dividend Stocks

Think Oil Is Going Higher? 3 Dividend Stocks to Buy Now

Looking for steady dividend growth? These three Canadian oil stocks could provide substantial dividend income in the coming years.

Read more »

Profit dial turned up to maximum
Dividend Stocks

This 7% Dividend Stock on the TSX is Worth Watching

With this superb TSX stock now trading at the bottom of its 52-week range, it's certainly a dividend stock you'll…

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

2 TSX Dividend Stocks to Buy While They Still Offer Great Yields

These top dividend-growth stocks now offer 7% dividend yields.

Read more »

Dots over the earth connecting the world
Dividend Stocks

1 Magnificent Dividend Stock Down 23% to Buy Right Now Near a Once-in-a-Decade Valuation

Patient investors could be happy with this dividend stock a few years down the road.

Read more »

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
Dividend Stocks

Best Stocks to Buy in May 2024: TSX Real Estate Sector

Besides yielding stable monthly passive income, these top TSX real estate stocks could help you earn high returns on your…

Read more »

exchange-traded funds
Dividend Stocks

These 2 Dividend ETFs Are a Retiree’s Best Friend

Retirees looking for steady income will love these two Canadian dividend ETFs

Read more »

Bad apple with good apples
Dividend Stocks

Safe and Sound Stocks for Canadians: My Top 5 Choices

Want some of the best stocks for Canadians right now? Here's my top 5 list of stocks to buy today…

Read more »