Is Intact Financial Stock a Buy for its 1.8% Dividend Yield?

Intact Financial’s dividend is not that attractive, but its strong history of execution and dividend growth are compelling factors for consideration.

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Intact Financial (TSX:IFC) has long been a great property and casualty insurance firm in Canada. While its current dividend yield of 1.8% might not sound like much compared to higher-yielding dividend stocks, the company’s solid long-term performance and strategic growth make it a top candidate for those seeking stability and growth. Here’s why investors should consider adding Intact Financial to their portfolios, particularly if they can catch the stock during a dip.

A track record of strong performance

Intact Financial has delivered impressive results over the past decade, outpacing industry averages in key financial metrics year after year. One of its top achievements has been its return on equity (ROE). For the last 10 years, it has consistently outperformed its peers, averaging a remarkable 14.6% ROE — 6.8 percentage points higher than the industry average.

This solid performance is a testament to the company’s well-executed business strategy. Intact Financial has grown its net operating income per share at a compound annual growth rate (CAGR) of 12%, which has translated into consistent dividend increases. Over the past 10 years, the company has managed to grow its dividend at an impressive CAGR of nearly 10%. This combination of income growth and capital appreciation has created significant wealth for long-term investors.

In addition to its strong organic growth, Intact Financial has been strategic in deploying capital to drive further expansion. The company has made multiple acquisitions over the years, with the most recent being the acquisition of Direct Line Insurance Group in October 2023. This acquisition strengthens Intact Financial’s RSA operations, giving the company a more substantial presence in the U.K. and Ireland markets — two key international markets that provide significant growth potential.

Consistent dividend growth and financial health

While the 1.8% dividend yield may seem modest, Intact Financial’s solid financial health and long history of dividend growth are important factors to consider. The company’s ability to increase dividends consistently is a reflection of its robust profitability and sound capital management.

Over the last decade, Intact Financial’s dividend growth has been driven by several factors, including its solid earnings performance and its ability to deploy capital effectively through strategic investments and acquisitions. The company’s strong operating margins — helped by efficiencies in its claims process, data-driven pricing, and use of artificial intelligence — have also contributed to its ability to generate consistent cash flow. These factors make it a reliable investment for investors who value steady value creation.

In the third quarter, the company experienced a setback due to catastrophe losses, which partially offset its otherwise strong performance across all its operations. Despite this, the company still posted net operating income per share of $1.01 and earnings per share (EPS) of $1.06. As well, its 12-month operating ROE of 15.8% remained strong. These results highlight the company’s ability to perform well even in challenging conditions.

Impressive long-term returns for investors

Intact Financial’s stellar long-term performance speaks for itself. Over the past 10 years, the stock has delivered a total return of approximately 328%, which works out to an annualized return of nearly 15.7%. For long-term investors, this means an initial investment of $10,000 would have grown to approximately $42,840, thanks to the combination of price appreciation and assuming dividends were reinvested. With no dividend reinvestment, the annualized return would have been around 14%, which was still stellar.

Moreover, the insurance company’s strong history of capital deployment and its strategic acquisitions suggest that the company is well-positioned to continue generating above-average returns in the years to come. While short-term volatility and market fluctuations can create some uncertainty, the company’s long-term growth prospects remain compelling, especially for those willing to hold through any temporary dips in share price.

The Foolish investor takeaway

At the recent price of just under $264 per share, analysts consider Intact Financial to be fairly valued, which means the stock may be a good buy, particularly if there is a pullback in the near future. With a strong history of outperformance, strategic acquisitions, and consistent dividend growth, it’s a blue-chip stock worth considering for investors with a long-term investment horizon.

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 Kay Ng has no position in any of the stocks mentioned. The Motley Fool recommends Intact Financial. The Motley Fool has a disclosure policy.

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