A wealth legacy sounds complex but it’s a concept that creates financial success. In stock investing, you use money to accumulate shares to build wealth from investment income. The solid foundation becomes not only financial wealth over time but lasting wealth.
Invest in the financial services sector if you want to create a wealth legacy through Canada’s primary stock exchange. It’s a heavyweight sector that accounts for 33% of the S&P/TSX Composite Index. The constituents include Canadian banks, insurance companies, and asset managers.
Do you need substantial capital to invest in financial services stocks? Not really. You can start with $8,500. Let it compound exponentially over a longer investment horizon. It can be your wealth legacy in the future.
Sector performance
Data from S&P Global shows that Canadian financial services only lost in one of the last five years. It delivered positive total returns in 2020 (+1.62%), 2021 (+36.5%), 2023 (+13.7%), and 2024 (+30.1%). In 2022 (-9.4%), inflation peaked to 8.1% in June leading to a 0.25% increase in the Bank of Canada’s policy rate to 5% a year later.
The banking sector is solid as a rock, particularly the five Big Banks. These giant lenders have dividend track records of more than 100 years. Besides sound financial health and high capital levels, the regulatory framework ensures a resilient financial system.
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Impressive dividend track record
The Canadian Imperial Bank of Commerce (TSX:CM) is Canada’s fifth-largest financial institution by market capitalization. At $80.66 per share, this $75.8 billion lender pays a hefty 4.8% dividend. An $8,500 investment will compound or grow 319.7% to $35,675.30 in 30 years.
The example illustrates the power of compounding through reinvesting the quarterly dividend payouts. Regarding dividend history, CIBC has been paying dividends since 1868. The overall return in the last five years is 173%-plus or a 22.2% compound annual growth rate (CAGR).
In Q1 fiscal 2025 (three months ending January 31, 2025), revenue and net income rose 17% and 26% respectively to $7.3 billion and $2.2 billion versus Q1 fiscal 2024. Victor G. Dodig, President and CEO of CIBC, said the diversified business platform, robust capital position, and strong credit quality form the foundation to deliver for stakeholders in 2025 and beyond. However, he expects volatility in the cross-border business environment.
Screaming buy
On the asset management side, Power Corporation of Canada (TSX:POW) stands out for its resiliency. At $50.78 per share, current investors enjoy a 14.6%-plus market-beating year-to-date gain, notwithstanding the tariff chaos. If you invest today, the dividend yield is a lucrative 4.8% (recently increasing 10%).
The core holdings of this $32.6 billion diversified international management and holding company are in insurance, retirement, wealth management and investment businesses. Its two subsidiaries, both TSX companies, are the primary earnings drivers.
In Q4 2024, net earnings from continuing operations climbed 142.3% year-over-year to $933 million. The $3.6 billion asset monetization over the last five years supported investments and funded share buybacks. According to management, Power is well-positioned to continue generating attractive returns through Great-West Lifeco and IGM Financial.
Wealth creation
CIBC and Power Corporation of Canada are a formidable combination for wealth creation. In an extended holding period, the wealth could endure, prosper, and be the legacy you leave behind for succeeding generations.
