Written by Amy Legate-Wolfe at The Motley Fool Canada

For a top dividend stock, $10,000 can create massive passive income through dividends and returns. That’s why today we’re looking at iA Financial (TSX:IAG) on the TSX. This stock could be a solid move for anyone looking to generate passive income with dividends. If you have $10,000 to put into this stock, the recent growth and future outlook suggest a potentially rewarding ride. Let’s dive into why this investment might be a smart choice, using a light, straightforward approach.

IAF stock

First off, iA Financial has a history of paying consistent and growing dividends. The life and health insurer just announced a 10% dividend increase, setting its quarterly payout at $0.90 per share. This adds up to $3.60 annually. Meanwhile, iA Financial has a solid track record of raising dividends over time, meaning your income could grow steadily.

From a financial health standpoint, iA Financial’s recent earnings are very encouraging. In Q3 2024, the company reported a whopping 414% year-over-year increase in net income, reaching $283 million. Earnings per share (EPS) for this quarter were $2.99, a significant jump from $0.54 in the same period last year. Such growth hints at a strong financial foundation. This supports its ability to continue and possibly increase dividend payments in the future.

The company’s return on equity (ROE) is also worth mentioning. At 14.5% for the trailing 12 months, iA Financial is not only achieving its mid-term targets but surpassing the Canadian insurance industry’s average ROE. For investors, a high ROE indicates efficient management – often a predictor of sustainable earnings growth and, by extension, reliable dividends.

Still valuable

Now, looking at iA Financial’s forward price-to-earnings (P/E) ratio of 10.7, the stock seems attractively valued, especially for a company showing such strong earnings growth. This relatively low P/E ratio suggests the stock could be undervalued, providing an opportunity for price appreciation over time. In other words, you’re buying into a growth story at a reasonable price. This is exactly what dividend investors like to see.

One standout feature is iA Financial’s robust solvency ratio, currently at 140%, comfortably above the company’s 120% target. A high solvency ratio ensures the company can handle its obligations and weather financial shocks, which is crucial for maintaining dividend stability. Furthermore, the company’s management is committed to driving long-term growth. Recent acquisitions, including Vericity and Prosperity blocks, have expanded its reach and customer base in both Canada and the U.S.