3 Reasons This Insurer Ought to Be in Your TFSA or RRSP

Intact Financial Corporation (TSX:IFC) stock hasn’t done very well year to date, but it’s coming along. Here are three reasons it belongs in your TFSA or RRSP.

| More on:

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

Any time you’re considering buying a stock for a tax-free account like the TFSA or a tax-deferred account like the RRSP, it’s critically important to consider the long-term financial strength of the investment, because any capital losses in either account can’t be used to offset capital gains.

Therefore, you want to own stocks in your TFSA or RRSP that have these three attributes: 1) a good dividend yield that grows by more than 8% a year; 2) a diverse group of revenue streams; and 3) is growing its bottom line by at least 10% annually.

Intact Financial (TSX:IFC), the largest property and casualty insurer, is such a stock.

The dividend yield is reasonable

Intact announced its Q2 2018 earnings July 31, at which time it raised its quarterly dividend by 9% to $0.70 a share. Currently yielding 2.7%, Intact has raised its annual dividend an average of 9% over the past nine years according to Fool contributor Kay Ng, a big proponent of low-risk dividend-growth stocks.

I’ve been a fan of Intact Financial since first recommending its stock last October after reading an in-depth article about CEO Charles Brindamour, who’s delivered for Intact shareholders. Since taking the top job January 1, 2008, Intact stock has achieved an annualized total return of 12% over the past 10 years, more than double the S&P 500 and almost as good as Prem Watsa’s returns at Fairfax Financial, because of Brindamour’s focus on profitable underwriting.

To increase dividends at an above-average growth rate each year, you’ve got to have growing profits. Intact does and then some.

Diversity helps

Like any insurance company, you have the insurance business, which is all about writing as much quality premium business as is possible without it coming back to nip you it the butt in the form of expensive claims, or, at the very least, minimizing the cost of those claims, so it doesn’t put you under.

Over the past decade since Brindamour has run Intact, it’s had only one quarterly underwriting loss (2013), providing investors with a low-risk proposition.

While some in the investment industry aren’t fans of Intact’s purchase of OneBeacon in the U.S. — it paid $2.3 billion for the U.S. specialty insurer in September 2017 — I think it helps diversify both the company’s geographic and product line coverage.

“IFC has underperformed its Canadian financial services peers since we downgraded it in October 2017,” said Desjardins Securities analyst Doug Young August 1. “While we still have concerns with the Canadian personal auto market and OB [OneBeacon], we believe these are better reflected in the stock today.”

Up almost 10% in the last month, it looks as though the analyst was bang on the money.

Growing its bottom line

The insurance business is notoriously choppy when it comes to earnings, so to expect Intact or any other firm to increase its profits by 10% annually every year is probably asking too much.

Having said that, Intact’s net income has grown from $508.3 million in 2007 to $792.0 million in 2017, with several peaks and valleys in between, which has resulted in a combined ratio alternating between the low 90s in good years to the high 90s in bad ones.

While the underwriting profits have moved around, Intact’s investment income has remained constant in recent years between $400 and $450 million, helping mitigate any losses from unexpected or overly hard catastrophes.

This financial flexibility allows Intact to increase its annual dividend payment by more than the banks and other TSX-listed insurance companies, providing investors with an added incentive to own its stock.

The bottom line

Since taking the helm in 2008, Brindamour has made four significant acquisitions, including OneBeacon in the U.S. and AXA here in Canada.

As we look to 2019, I can see further acquisitions south of the border, as it looks to grow its U.S. business.

I see stable growth for Intact in the years ahead.

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

Before you buy stock in Intact Financial Corporation, 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 Intact Financial Corporation 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 $21,345.77!*

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 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

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 Will Ashworth has no position in any stocks mentioned. Intact and Fairfax are recommendations of Stock Advisor Canada.

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 Investing

coins jump into piggy bank
Dividend Stocks

How to Use Your TFSA to Earn $1,057/Year in Tax-Free Income

Investing $5,000 in each of these high-yield dividend stocks can help you earn over $1,057 per year in tax-free income.

Read more »

data analyze research
Tech Stocks

Is BlackBerry (TSX:BB) a Buy in May 2025?

While its recent downturn might not look pretty, it might be the best opportunity to buy BlackBerry (TSX:BB) stock and…

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Investing

Where I’d Invest the New $7,000 TFSA Contribution Limit in 2025

If you have $7,000 for the new TFSA contribution increase, here are three stocks I would contemplate adding to the…

Read more »

open vault at bank
Bank Stocks

2 Banking Stocks I’d Buy With $7,000 Whenever They Dip in Price

Two banking stocks are worth buying on the dip and as reliable passive-income providers.

Read more »

Paper Canadian currency of various denominations
Investing

How I’d Invest $7,000 in Financial Sector Stocks for Stability

This Canadian financials ETF may stay insulated from Trump's tariffs.

Read more »

Man in fedora smiles into camera
Dividend Stocks

How I’d Build a $20,000 Retirement Portfolio With These 3 TSX Dividend All-Stars

If you're worried about returns and want to focus on dividends, these dividend stocks are the first to consider.

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

If I Could Only Buy and Hold a Single Canadian Stock, This Would Be It

Here's why this high-quality defensive growth stock is one of the best Canadian companies to buy now and hold for…

Read more »

dividends can compound over time
Dividend Stocks

3 Canadian Market Leaders Where I’d Invest $10,000 for Sustained Performance

Market leaders like Alimentation Couche-Tard Inc (TSX:ATD) are worth an investment.

Read more »