Is Sun Life Financial Stock a Buy for its 4% Dividend Yield?

Let’s dive into whether Sun Life Financial (TSX:SLF) stock is a buy for its dividend yield alone, or if this is a more complex stock to consider.

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Sun Life Financial (TSX:SLF) is a well-recognized company in the world of financial services, known for its steady and consistent cash flow growth over time. The company’s stock chart below tells a solid picture of such growth and reminds investors why this stock is worth holding over the long term.

Created with Highcharts 11.4.3Sun Life Financial PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

That said, this company is also a notable dividend stock, providing a current yield that is hovering around 4%. The question for many investors looking for bond proxies and income-producing assets is whether this stock is worth holding on a dividend basis alone.

Let’s dive into what to make of the company’s overall business model and its current yield and focus on this stock from an income perspective.

Strong underlying business

For any investor considering either the growth or dividend portion of an investment, ensuring that the underlying company has a durable and sustainable business model is important. Sun Life Financial certainly appears to be a company with both.

The company provides a range of services alongside its core insurance business, which includes wealth management and asset management services. This diversification of the company’s revenue streams allows Sun Life investors to benefit from less volatility over business cycles. In other words, if one business segment is lagging the others, one would hope that a pickup in business in other areas could offset these near-term losses. That’s been the case in past years, and it’s a top reason why many own this stock.

Additionally, the company’s relative valuation and payout ratio are attractive. With a current multiple of just 14 times trailing earnings and a payout ratio below 75%, the company’s 4% dividend yield does appear to be well-covered. Anything can happen in the world of insurance. But as far as top-tier, high-quality insurance players are concerned, this company is certainly worth a look at in my books.

Solid financials

This diversified business model has produced excellent results for investors in past quarters. The company’s most recent earnings reports highlighted how well Sun Life’s operating business has performed, with the company raising its dividend distribution to $0.75 per share on strong earnings and revenue growth.

I’m not certain that the company’s overall growth profile will remain intact for years to come. Most insurance names have seen a boost as yield curves have un-inverted, and things appear to be going back to normal.

But once this period of volatility is over, Sun Life is a stock I think can provide meaningful and consistent returns even from these levels. The company’s relatively attractive multiple and dividend yield complement a strong core business that won’t be going anywhere anytime soon.

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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 Chris MacDonald 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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