2 Dividend Stocks to Buy and Hold Forever by The Motley Fool


© Reuters. Passive Income: 2 Dividend Stocks to Buy and Hold Forever

As RBC (TSX:) noted in an article, “Most amounts received from a life insurance policy are not subject to income tax. Regardless of policy size, your spouse, child, or anyone else you designate as beneficiary would not have to report life insurance proceeds as taxable income on their Canadian tax return. In other words, most amounts received from a life insurance policy are tax-exempt, making it a wonderful way to pass on wealth to loved ones.

Therefore, companies like Sun Life (:SLF)(NYSE:SLF) and Manulife (TSX:TSX:)(NYSE:MFC) are here to stay. Investors looking for passive income should consider investing in these dividend-paying stocks.

Sun Life Stock Sun Life stock is a beloved dividend-paying stock in the life and health insurance industry. It had strong three-year revenue growth of 9.8% per year. During the period, its pre-tax income grew at a rate of 13.2%, while its net income grew at a compound annual growth rate (CAGR) of approximately 14.5%. It is more telling to also observe the growth of earnings per share (EPS). Specifically, adjusted EPS of dividend-paying stocks grew at a CAGR of approximately 7.5% over the period.

At $64.73 at the time of writing, Sun Life shares are trading at a discount of around 14% with a 12-month upside potential of around 17%. Above all, it pays a good return of almost 4.1%. Its dividend is protected by a sustainable payout ratio of around 44%. Its revenue has also grown steadily over the past 10 years or so.

Sun Life shares appear to be a good choice for passive income, given its stable earnings and persistent growth, generous yield and reasonable valuation.

Manulife Stock If you want an even bigger return, consider Manulife Stock, the equivalent of Sun Life. At $25.28 at the time of writing, Manulife shares are outperforming by 5.2%. Its payout rate for 2022 is estimated at around 38%. MFC shares are trading at a greater discount than Sun Life. Specifically, it trades at around 7.6 times earnings, while analysts estimate its EPS can grow up to 13% annually over the next three to five years.

I don’t know what it would take for MFC to return to a higher valuation, but dividend stocks can potentially trade around 50% higher. Some analysts believe the discount is due to its exposure to Asia, which is impacted by zero-COVID policies in Chinese cities.

MFC’s three-year revenue growth rate is 17.1%. During the period, its pre-tax profit grew at a rate of 13.8%, while its net profit grew at a CAGR of approximately 12.5%. On a per share basis, its adjusted earnings grew at a CAGR of approximately 5.9%.

Rising interest rates Here’s good news for income investors: the best interest rate on GICs is now 4%! Rising interest rates make dividend stocks less attractive. Therefore, SLF and MFC shares may continue to be weighed over the coming months. That said, it will eventually get to a point where they’re too attractive to ignore. After all, they have the ability to increase their dividends and offer the potential for price gains.

Between the two insurance values, sun life is often considered the passive income investment that helps you sleep better at night. This is why it commands a higher price/earnings multiple. However, if you need current income, SLF’s lower yield can’t beat MFC’s dividend income generation.

The post office Passive Income: 2 Dividend Stocks to Buy and Hold Forever appeared first on Motley Fool Canada.

The Motley Fool has no position in the stocks mentioned. Dumb contributor Kay Ng owns Manulife stock.

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