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What are we looking for?

Sustainable dividends from Canadian life insurers set to gain with rising interest rates.

The screen

The Bank of Canada’s commitment to spurring interest rates higher this year may slow growth for several sectors, but the financial industry – in particular life insurers – isn’t one of them.

Insurers write policies, collect premiums from customers and then invest those premiums to meet future claims. They’re required to invest significant amounts of that money in fixed-income instruments, namely bonds. That means rising interest rates are a boon to their returns. They also position the shareholders of those insurers for dividend hikes.

From a list of Canadian life insurers, we identified leaders with steady growth prospects that will gain even more from rising interest rates. We then applied our TSI Dividend Sustainability Rating System. It awards points to a stock based on key factors:

  • One point for five years of continuous dividend payments – two points for more than five;
  • Two points if it has raised the payment in the past five years;
  • One point for management’s commitment to dividends;
  • One point for operating in noncyclical industries;
  • One point for limited exposure to foreign currency rates and freedom from political interference;
  • Two points for a strong balance sheet, including manageable debt and adequate cash;
  • Two points for a long-term record of positive earnings and cash flow to cover dividends;
  • One point if the company is an industry leader.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and The TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Canadian life insurers set to gain with rising interest rates

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Mil.)1Y Ttl. Rtn. (%) Recent Price ($)
1Great-West Lifeco Inc.GWO-TAbove Average95.334,111.410.436.83
2Manulife Financial Corp.MFC-TAbove Average94.951,799.3-0.626.91
3Sun Life Financial Inc.SLF-TAbove Average93.841,205.69.770.37
4Fairfax Financial HoldingsFFH-TAbove Average91.916,425.224.6672.50
5Power Corp. of CanadaPOW-TAbove Average85.126,863.717.039.03
6iA Financial Corp. Inc.IAG-TAbove Average83.38,223.810.176.66
7E-L Financial Corp. Ltd. ELF-TAbove Average81.13,364.0-5.7872.00

Source: Dividend Advisor.

*Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements.

Our TSI Dividend Sustainability Rating System generated seven stocks. Sun Life Financial Inc. and Manulife Financial Corp., both headquartered in Toronto, are among Canada’s leading life insurers, with expanding interest in Asia. E-L Financial Corp. Ltd., also based in Toronto, provides a range of insurance products for individuals as well as groups.

Another Toronto-based leader, Fairfax Financial Holdings Ltd., mainly sells insurance and reinsurance, but also manages a large investment portfolio. Winnipeg-headquartered Great-West Lifeco Inc. is a top life insurer in Canada, with operations in the United States, Britain and Europe. Quebec City-based iA Financial Corp. Inc. offers life and health insurance for individuals as well as groups. Montreal-headquartered holding company Power Corp. of Canada has controlling stakes in both Great-West Lifeco and IGM Financial Inc. The latter is Canada’s largest independent mutual fund provider.

We advise investors to do additional research on any investments we identify here.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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