Invest $10,000 in This Dividend Stock for a Potential $4,781.70 in Total Returns

A dividend stock doesn’t have to be risky, or without growth. And in the case of this one, the growth potential is appealing.

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Editor’s note: A previous version of this article said investors could receive $4,791.70 in passive income. That figure applies to potential total returns, not just dividends, and was overstated by $10. The article has been corrected.

For a top dividend stock, $10,000 can create massive passive income through dividends and returns. That’s why today we’re looking at iA Financial (TSX:IAG) on the TSX. This stock could be a solid move for anyone looking to generate passive income with dividends. If you have $10,000 to put into this stock, the recent growth and future outlook suggest a potentially rewarding ride. Let’s dive into why this investment might be a smart choice, using a light, straightforward approach.

Created with Highcharts 11.4.3iA Financial PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

IAF stock

First off, iA Financial has a history of paying consistent and growing dividends. The life and health insurer just announced a 10% dividend increase, setting its quarterly payout at $0.90 per share. This adds up to $3.60 annually. Meanwhile, iA Financial has a solid track record of raising dividends over time, meaning your income could grow steadily.

From a financial health standpoint, iA Financial’s recent earnings are very encouraging. In Q3 2024, the company reported a whopping 414% year-over-year increase in net income, reaching $283 million. Earnings per share (EPS) for this quarter were $2.99, a significant jump from $0.54 in the same period last year. Such growth hints at a strong financial foundation. This supports its ability to continue and possibly increase dividend payments in the future.

The company’s return on equity (ROE) is also worth mentioning. At 14.5% for the trailing 12 months, iA Financial is not only achieving its mid-term targets but surpassing the Canadian insurance industry’s average ROE. For investors, a high ROE indicates efficient management – often a predictor of sustainable earnings growth and, by extension, reliable dividends.

Still valuable

Now, looking at iA Financial’s forward price-to-earnings (P/E) ratio of 10.7, the stock seems attractively valued, especially for a company showing such strong earnings growth. This relatively low P/E ratio suggests the stock could be undervalued, providing an opportunity for price appreciation over time. In other words, you’re buying into a growth story at a reasonable price. This is exactly what dividend investors like to see.

One standout feature is iA Financial’s robust solvency ratio, currently at 140%, comfortably above the company’s 120% target. A high solvency ratio ensures the company can handle its obligations and weather financial shocks, which is crucial for maintaining dividend stability. Furthermore, the company’s management is committed to driving long-term growth. Recent acquisitions, including Vericity and Prosperity blocks, have expanded its reach and customer base in both Canada and the U.S.

Additionally, iA Financial has a dividend payout ratio of around 32.6%, which is comfortably low. A lower payout ratio means the company retains plenty of earnings to reinvest in the business or increase future dividends. It’s a signal that management isn’t stretching itself thin and prioritizes long-term stability over short-term gains.

Bottom line

So how much could you bring in? If we were to see iA Financial grow once more by 45% as it has in the last year, here is how much a $10,000 investment could get you.

COMPANYPRICENUMBER OF SHARES OWNEDANNUAL DIVIDEND PER SHARETOTAL DIVIDEND PAYOUT
IAG – current price$13077$3.60$277.20
COMPANYPRICENUMBER OF SHARES OWNEDCAPITAL APPRECIATION
IAG – if stock increases 45%$188.5077$4,504.50

That’s $277.20 in dividend income and $4,504.50 in potential returns for the dividend stock, totalling $4,781.70! So, iA Financial looks like a solid choice. With your $10,000 investment, you’re not only buying into a company with a strong dividend track record but also positioning yourself for potential capital appreciation. In today’s market, finding a blend of growth and income like this is rare, making IAG a compelling investment option for total returns.

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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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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