Is Fairfax Financial Stock a Buy for its 1.1% Dividend Yield?

Is Fairfax worth adding to your portfolio?

| More on:
a man relaxes with his feet on a pile of books

Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Fairfax Financial Holdings (TSX:FFH) has garnered attention as a potential dividend investment. Yet, is it worth adding to your portfolio? Let’s take a detailed look at its recent performance, dividend history, and future outlook to help you decide.

Created with Highcharts 11.4.3Fairfax Financial PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Into earnings

Fairfax stock delivered a solid performance in the third quarter of 2024, reporting net earnings of $1.03 billion. This represents a substantial achievement, driven by higher adjusted operating income and significant net gains on investments — particularly bonds and common stocks, which totalled $1.29 billion. These results underscore Fairfax stock’s ability to navigate challenging markets effectively, thanks to its diversified investment strategy.

Fairfax stock’s underwriting operations remain robust, achieving a consolidated combined ratio of 93.9% — a key indicator of profitability in the insurance industry. A combined ratio below 100% signifies underwriting profits, and Fairfax stock’s ability to consistently maintain this ratio highlights its strong operational discipline. Gross premiums written also saw an impressive 13.9% year-over-year increase, supported by Fairfax’s acquisition of Gulf Insurance, a move that reflects its commitment to strategic growth.

What about the dividend?

Fairfax stock has a track record of rewarding its shareholders through consistent and growing dividends. The company announced a 50% increase in its annual dividend to $15.00 per share in January 2024, up from $10.00 the previous year. This increase underscores Fairfax stock’s financial strength and its management’s confidence in generating sustainable long-term cash flows. However, despite this growth, the current dividend yield hovers around 1.10%, which is modest compared to many of its peers.

One reason for this modest yield lies in Fairfax’s low payout ratio of around 9.17%. While this means the dividend yield isn’t high, it also indicates significant room for future growth, as the company retains a substantial portion of its earnings to reinvest or strengthen its balance sheet. For long-term investors, this strategy aligns with sustainability and the potential for consistent dividend hikes in the coming years.

Showing strength

Fairfax stock’s financial health remains a highlight. The company holds a strong cash position of $8.69 billion as of the most recent quarter and has shown a commitment to optimizing its capital structure. Looking at its valuation, Fairfax stock trades with a trailing price-to-earnings (P/E) of 8.69 and a forward P/E of 9.35, making it relatively attractively priced for a company of its calibre. Its price-to-book (P/B) ratio of 1.42 suggests that the market recognizes Fairfax’s intrinsic value while still leaving some room for upside. These metrics show that Fairfax offers a compelling mix of value and growth potential, especially for investors who prioritize fundamentals over speculative bets.

The future outlook for Fairfax appears bright. The stock has a proven track record of strategic acquisitions and effective risk management. Therefore, it is well-positioned to capitalize on opportunities in both insurance and investment markets. Its diverse portfolio across insurance, reinsurance, and investment holdings provides a balanced approach to growth and stability, catering to both conservative and growth-oriented investors.

Bottom line

Fairfax stock is an attractive option for dividend investors seeking a reliable and growing income stream. While its current yield may not be the highest, its consistent dividend growth, low payout ratio, and strong financial performance suggest long-term sustainability. It has robust underwriting performance, strategic acquisitions, and disciplined financial management, providing Fairfax stock with a compelling case for inclusion in a dividend-focused portfolio. Still, as with any investment, potential buyers should align their decisions with their financial goals and risk tolerance. Keep in mind that Fairfax’s strength lies in its long-term vision.

Should you invest $1,000 in Fairfax Financial right now?

Before you buy stock in Fairfax Financial, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Fairfax Financial wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 positions in and recommends Fairfax Financial. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Canada day banner background design of flag
Dividend Stocks

Top Canadian Stocks to Buy Right Now With $5,000

Looking for some safe, long-term stocks? These Canadian stocks are where you should look first.

Read more »

Car, EV, electric vehicle
Dividend Stocks

Outlook for Magna Stock in 2025

Magna stock has sunk into the toilet, but it could now be one of the best undervalued stocks out there.

Read more »

alcohol
Dividend Stocks

Why I’d Consider These 3 Blue-Chip Dividend Stocks for a $20,000 Lifelong Investment

In a market correction, it’s essential to focus on blue-chip stocks that offer stability and long-term growth potential.

Read more »

Canadian dollars are printed
Dividend Stocks

Transform Your TFSA Into a Cash-Creating Machine With $14,000

Investing a total of $14,000 across these three stocks could earn you more than $1,039 in tax-free income each year.

Read more »

coins jump into piggy bank
Dividend Stocks

Where I’d Invest $12,000 in Canadian Stocks for Reliable Dividends

Want reliable dividends? Here's a trio of stocks that can provide a juicy income stacked for growth, even with a…

Read more »

Young Boy with Jet Pack Dreams of Flying
Dividend Stocks

Beginner Investors: 4 Top Canadians Stocks to Buy in 2025

If you're new to investing and looking for some Canadian stocks that are worry free, here's where to go.

Read more »

protect, safe, trust
Dividend Stocks

3 Canadian Stocks to Play Defence in a Trade War

Are you wondering what stocks could be safe to buy and hold through the market turmoil? Here are three to…

Read more »

A meter measures energy use.
Dividend Stocks

2 Canadian Utility Stocks to Buy and Hold for Lifelong Income

Here are two Canadian utility stocks you can buy and generate a steady stream of dividend income in 2025 and…

Read more »