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3 Insurance Picks Beyond Canadian Banks: Strong Dividends

Published 2024-04-17, 03:53 a/m
© Reuters.  3 Insurance Picks Beyond Canadian Banks: Strong Dividends

Kalkine Media - It's highly probable that you're invested in Canadian bank stocks, whether knowingly or not. They represent about 31% of the TSX Composite Index and are prominent holdings in Canadian index funds. If you hold a TSX index fund, you're essentially a bank investor!

However, Canadian banks aren't the sole options for investors. Several other TSX financial stocks offer attractive qualities, with some even outperforming the banks in recent decades.

One area worth exploring for potential investments is the insurance sector. Insurance companies often experience boom and bust cycles, presenting opportunities for value investors when they become undervalued. Here are three Canadian insurance stocks that could be considered better buys than the big banks:

Sun Life Financial (TSX:SLF) (TSX:SLF):

Sun Life Financial (TSX:SLF) is a Canadian insurance company offering various types of insurance, including life, health, and mortgage protection insurance. Its focus on life and health insurance, which are considered relatively low-risk segments, provides stability compared to insurers exposed to more volatile risks like natural disasters or theft.

Sun Life has demonstrated steady growth, with revenue increasing from $10 billion to $21 billion and earnings rising from $1.8 billion to $3.2 billion since 2014. Its consistent performance and attractive dividend yield of 4.4% make it an appealing option for investors seeking stability and income.

Fairfax Financial (TSX:FFH) Holdings (TSX:FFH):

Fairfax Financial Holdings is a Canadian insurance company led by legendary value investor Prem Watsa. Similar to Berkshire Hathaway (NYSE:BRKa), Fairfax's investment portfolio contains a significant allocation to equities. The company has achieved impressive revenue and earnings growth, with earnings growing by 230% in the most recent fiscal year and averaging 71% per year over the last five years.

Although Fairfax's dividend yield is relatively modest at 1.3%, its track record of growth and the leadership of Prem Watsa make it a promising investment opportunity.

Great-West Lifeco (TSX:GWO):

Great-West Lifeco (TSX:GWO) offers a higher dividend yield and lower valuation compared to Sun Life and Fairfax. While it has experienced some earnings volatility, particularly in non-core business units, its core insurance business has shown growth potential. The company's recent quarter demonstrated positive earnings growth, with adjusted earnings beating expectations by 2.9%.

For investors willing to accept a higher level of risk in exchange for a higher dividend yield, Great-West Lifeco presents an intriguing option in the insurance sector.

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