The TSX index might just finish the year with a gain of more than 25%, and while the past week’s bounce could precede an even bigger move, Canadian investors shouldn’t expect the scorching pace of gains to continue forever, especially as the AI trade and gold miners look to run into a bit of a cooldown. While the latest surge in the TSX index may be alarming to some who pay careful attention to valuations, I still think that, relative to the S&P 500, the Canadian market is still fairly priced or even a tad on the affordable side after the recent slip in the gold miners.
With the big banks picking up steam again while gold prices find their footing again, I like the setup going into December. But instead of chasing the next big melt-up, I’d much rather look to the proven dividend payers that are still priced with not much in the way of expectations in mind. In this piece, we’ll look at two names that I’d be tempted to buy come January 2026, the next TFSA top-up season.
So, if you’re short on ideas and you’re unimpressed by today’s slate of GIC rates, which are the lowest in a number of years, perhaps the following name is worth checking out today:
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IA Financial
The insurers have been firing on all cylinders this year, and IA Financial (TSX:IAG), which is a much smaller player in the space with a market cap just over $15 billion, has been really impressing, with 27% in year-to-date gains. Zooming out, the returns have been even more impressive, with shares of IAG pretty much doubling in the past two years.
Of course, the pace of gains is unsustainable, but that doesn’t mean you cannot do well, perhaps far better than the TSX index moving forward, with the name at the current entry price. Today, shares are overheated, but the valuation is still nowhere close to being excessive, with the name trading at 15.6 times trailing price-to-earnings (P/E).
Looking forward
Looking into the next year, shares look even cheaper at an 11.6 times forward P/E. Undoubtedly, there are a lot of industry tailwinds in play, but you shouldn’t discount management’s efforts, which have and will continue to pay big dividends. Though the 2.4% yield isn’t all that remarkable, I do think the conservative payout ratio and growth prospects could pave the way for better dividend growth than rivals in the coming three years.
Either way, IAG stock is a value play, dividend grower, and momentum stock all rolled into one. As the up-and-comer looks to make major strides via M&A, I certainly wouldn’t bet against the rally coming to a painful halt. With strong managers, an ample growth runway, and a strong history of smart acquisitions, perhaps IA Financial is the best insurance play in the Canadian market.
Is the stock worthy of a piece of your next TFSA contribution? Perhaps. If it pulls back into the end of the year, the name may very well be more of a table pounder, in my opinion.
