Intact Financial: Stock & Dividend Analysis

Thanks to everyone who participated in the poll last week. All others can, as always, go to hell.

Just kidding, I love you all.

Even the slackers?

Especially the slackers.

I’ve made one small little change based on your feedback. There will be less coverage of U.S. and worldwide stocks going forward. If I feel the need to write about one of those stocks, I’ll do so over at Seeking Alpha. I’ll then link to anything I think y’all might find interesting.

You guys told me that there are plenty of other places to get coverage of U.S. dividend stocks, and you’re right. But there aren’t very many that cover the more obscure Canadian dividend payers. So I’ll focus on those, plus I’ll mix in the big picture stuff that the majority of you still enjoy.

So basically, it’s business as usual except for a little less about non-Canadian stocks. Pretty much what you’d expect from a place that calls itself Canadian Dividend Investing.

Today’s edition of the newsletter is going to focus on an excellent Canadian dividend stock that has sold off lately. Let’s take a closer look at what is impacting Intact Financial (TSX:IFC) and see whether it’s simply a short-term issue, or something more sinister.

Intact Financial is Canada’s largest property and casualty insurer, meaning it mostly insures homes and cars. It has an 18% market share domestically, making it by far the largest player in what has become a pretty fragmented market.

What’s interesting is Intact isn’t just a P&C consolidator in Canada. Most domestic insurers simply aren’t for sale, so the company has been forced to pivot. It has been making steady acquisitions in a market where there are a lot of people selling, insurance brokerages. It is the owner of Brokerlink, which has grown into 235 branches and more than 4,000 employees.

Owning so many brokerages also gives Intact an edge on the distribution side. You’d better believe Brokerlink agents are incentivized to push Intact products at every opportunity.

Once P&C acquisitions started to dry up in Canada, Intact pivoted to other markets. In 2017 it spent $2.3B to acquire OneBeacon Insurance Group, a specialty lines platform in the U.S. It then expanded into the United Kingdom, spending $5.1B to acquire RSA Insurance’s Canadian, UK, and International operations. Tryg bought the rest of the company. RSA then expanded in the UK in 2023, spending approximately $900M to acquire Direct Line Group’s commercial lines operations.

Put it all together, and Intact has an excellent record in acquisitions.

Intact is led by Charles Brindamour, who is quietly one of Canada’s best CEOs. Under his leadership, Intact has become one of the most disciplined underwriters on the planet. The company consistently posts one of the best combined ratios in the sector. Intact is regularly in the low-90s range, while most competitors are in the mid-90s to more than 100.

(Anything below 100 indicates an insurer is posting a profit on its underwriting operations alone. That’s before any profits from the investment portfolio. The further you are below 100, the more underwriting profit you’re posting.)

It then takes that underwriting expertise and applies it to companies that it has acquired, helping its new acquisitions bring down their own combined ratios.

Winning here isn’t just about vanity. It directly leads to better financial returns. Just like with banking, return on equity is a key performance indicator for the insurance industry. Intact has consistently beaten peers here, posting an average ROE outperformance of 650 basis points versus its competitors. It has done so while growing the bottom line by an average of 10% per year.

This outperformance is the heart of any Intact analysis, so I want to spend a little time here. Intact’s acquisition strategy has been so successful that it delivers return on equity in the neighbourhood of 50% better than the average peer (average is about 12%; Intact does about 18%). It has also been one of the fastest growers in the industry. Terrific growth combined with underwriting excellence is a winning combination.

That last paragraph is why I don’t take the “Intact is too expensive” criticism very seriously. The stock should be expensive! Look at those results!

Another thing that makes Intact’s ROE outperformance even more impressive is the fact that the company has a conservative investment portfolio. Insurance regulators ensure a certain amount of prudent management here, but Intact is even more risk-adverse than most. Its investment portfolio is more than 80% invested in debt/cash equivalents, and just 9% in equities. There’s an additional 4% of the portfolio invested in preferred shares.

Another example of Intact’s conservative management is its debt levels. Despite running a growth-by-acquisition strategy, Intact’s long-term debt-to-capital ratio is consistently under 20%. It currently stands at 16.4%. This means it will probably have to issue equity as part of any acquisition — just like it has in the past — but the strong return on equity means the strategy has been a winning one.

Despite all this, Intact shares have been under pressure lately. The stock peaked at more than $315 back in the summer of 2025. These days, shares trade hands at $255 each. That’s a decline of right around 20%. The last time that happened was in March, 2020. The time before that? 2008-09.

In other words, this is Intact’s biggest drawdown ever that wasn’t caused by a global financial meltdown. The rest of the time has been pretty much straight up and to the right.

There are a few things happening here. Firstly, the P&C market is softening. Certain parts of the market — such as commercial property and specialty lines — are seeing an increase in competition. This has brought prices down a bit.

In Canada specifically, there are a few things impacting the P&C market. The first one is immigration. As fewer folks enter the country (and others leave), there just isn’t as much demand for new insurance policies.

Years of aggressive price increases have also left a lot of consumers feeling weary. Governments have noticed, and they’re taking steps to moderate future increases. Alberta specifically has capped rate increases on “good” drivers to 7.5% in 2025-26, and is transitioning to a no-fault system in 2027 to lower legal costs. Ontario is also getting more involved in regulating the industry.

Interestingly, Alberta’s reforms may have gone too far. A half-dozen insurers have pulled out of the province since 2023. Critics have said that will ultimately increase the cost of insurance.

We saw evidence of another factor impacting Intact’s share price when the company released its most recent quarterly earnings last week. Direct premiums written (DPW) increased by 4% on a year-over-year basis, which translated into 7% higher operating income. Those aren’t terrible results by any means, but it does provide evidence towards an uncomfortable truth. Intact just doesn’t grow that much without big acquisitions, and who really knows when another one of those is coming?

Analysts aren’t exactly bullish, either. On a normalized basis, Intact earned $20.90 per share in 2025. That’s expected to decrease to $18.05 per share in 2026 before recovering somewhat to $18.86 per share in 2027.

That’s still a nearly 100% increase in earnings between 2020 and 2026, so I think the long-term story here is fine. But investors are worried about the short-term, and that’ll trump long-term thinking every time.

Looking for more Nelly for you eye and ear holes? Of course you are.

This week on the DIY Wealth Canada pod Bob and I welcomed Mark from My Own Advisor to the show. We chatted about finfluencers, which are becoming a tricky issue for regulators to manage.

Check that one out on Spotify or YouTube.

I also posted a new episode of the Dividend Deep Dives show on YouTube. This one looks at Canadian banks in more of a big picture way. I analyze what makes them special compared to other banks in other countries, and how that leads to excess returns. Check it out.

Make sure you subscribe to CDI on YouTube to never miss an edition of Deep Dives (or the podcast) ever again!

Even with the expected decline in earnings, Intact shares still look like a good value.

As y’all probably know by now, I use two very simple metrics to determine if a stock is cheap. The first is comparing valuation to historical valuation. And the second is comparing dividend yields to historical dividend yields.

A better than average valuation usually indicates a stock is undervalued, and a higher than normal dividend yield tells us the same thing.

This method isn’t perfect, of course. But what one is?

Anyway, let’s start with valuation. Intact passes that test with flying colours. It trades for just over 14x forward earnings, which is flirting with its lowest valuation in a decade.

In January 2017 — the first time Intact traded for about 14x earnings — shares traded hands for $95 each. They’re $255 today. If we include reinvested dividends, that works out to nearly a 14% annualized return.

I’m not saying Intact will post similar results over the next decade. But what I do think is buying quality companies at a discount is usually a winning strategy. Intact’s previous performance indicates just that.

The dividend yield tells a slightly different story. Intact regularly traded for a 3%+ yield in the 2016-2020 period. The yield today is right around 2.3%, which is about average for the last 10 years. It is about 10% higher than average for the last five years at least.

In short, Intact looks like a bargain on a P/E basis, but a little less so on a dividend yield basis. It’s more like a fair valuation on a dividend yield basis.

As mentioned, IFC is a serial issuer of shares to help pay for acquisitions. It has periodically repurchased shares over the years, but it doesn’t do enough of that for us to get excited.

Instead, we’ll focus on the dividend, which is a nice combination of yield and growth.

Intact debuted on the TSX back in 2005. Back then it paid a $0.65 per share annual dividend. It started raising the dividend in 2006 and hasn’t looked back. That translates in 20 consecutive dividend increases, and a cumulative $5B returned to shareholders.

These days the payout is $5.88 per share on an annual basis after the dividend was once again increased in 2026.

This kind of dividend growth translates into serious yield on cost in a few years. I first bought Intact in 2020 at around $140 per share. These original shares offer a yield on cost of more than 4%. At the current rate of increases, the yield on cost should exceed 6% by the end of the decade.

The payout ratio is also very reasonable. We’re looking at about a 30% payout ratio in 2026, and likely about the same in 2027 as earnings recover a bit. Even if the business stays weak into 2027 (and there are no acquisitions), the low payout ratio ensures that dividend growth will continue even if earnings don’t cooperate in the near term.

Intact is one of Canada’s top dividend growth stocks, and I don’t see anything that is about to put that record into jeopardy. The only thing I see is a potential slowing in dividend growth if results stay soft. But likely not a huge amount.

Dividend safety: High
Dividend growth: 8%+ annually

Intact is an excellent insurer. It really is world-class.

It has terrific management, demonstrated underwriting excellence compared to peers, and its conservative nature gives it all sorts of advantages. It can acquire other insurers and use its expertise to improve results.

Its forays into other parts of the insurance market — like the brokerage space — is also interesting. There is a ton of potential to consolidate insurance brokers in Canada, never mind other countries.

I believe the better than usual valuation is a nice time to buy this proven winner, and so I did exactly that. I added to my position last week after the stock fell. I was waiting to add under the $250 level, and the market delivered.

Your author owns shares in Intact Financial. Nothing written above is investment advice. It is for research and educational purposes only. Consult a qualified financial advisor before making any investment decisions.