Investing in high quality dividend shares with a rising payout is a confirmed technique to generate inflation-beating returns over time. On this article, I’ve recognized one prime TSX inventory that trades at an affordable valuation in October 2025 and is poised to develop its dividend at a gradual tempo by way of 2027.

Valued at a market cap of $8.1 billion, Definity Monetary (TSX:DFY) went public three years in the past and has since returned over 150% to shareholders. Definity Monetary provides property and casualty insurance coverage merchandise in Canada.

It supplies private insurance coverage merchandise, together with auto, property, common and umbrella legal responsibility, and pet insurance coverage merchandise to people underneath a number of manufacturers. Its product portfolio additionally contains business insurance coverage merchandise reminiscent of fleet, business auto, property, legal responsibility, and specialty insurance coverage to companies underneath the Definity Insurance coverage and Economical model names.

Definity distributes these merchandise primarily by way of intermediaries and brokers, in addition to on to prospects. It markets its business insurance coverage merchandise to small companies, mid-market corporations, and varied focused segments.

Is that this TSX dividend inventory purchase?

Earlier this 12 months, Definity Monetary introduced its most transformative deal since going public. The Canadian property and casualty insurer agreed to accumulate Vacationers Canada for $3.3 billion, a transfer that vaults Definity from sixth to fourth place amongst Canadian P&C insurers and places the corporate on monitor for mid-teen working returns on fairness.

The acquisition provides $1.6 billion in gross written premiums to Definity’s current $4.4 billion base, representing roughly a 3rd improve in dimension. In business insurance coverage, Definity’s enterprise is anticipated to develop by over 40%, shifting it from seventh to fourth in trade rankings. The non-public insurance coverage portfolio may develop by over 30%, strengthening the corporate’s place in broker-distributed private strains from seventh to fifth.

Administration tasks $100 million in annual run-rate expense synergies inside three years of closing. These financial savings come from consolidating know-how platforms, eliminating duplicate company features, and eradicating prices for providers at present offered by Vacationers’s U.S. guardian firm. Integration prices ought to run about 1.5 to 1.7 instances the last word synergy goal.

Definity will fund the acquisition utilizing $1.5 billion in extra capital, roughly $1.6 billion in financial institution and bond financing, and $350 million from a personal fairness placement. Notably, about $1 billion of that extra capital comes from Vacationers Canada itself and will probably be repaid inside six months of closing by way of an extra capital time period mortgage.

Definity expects a debt-to-capital ratio of round 30% at closing, then plans to cut back this to a 25% goal inside 24 months. This optimized capital construction ought to enhance run-rate working return on fairness by over 200 foundation factors, earlier than accounting for any synergies or enterprise enhancements.

Sonnet reached breakeven profitability, and the working expense ratio already hit year-end targets at 11.5%. The Guidewire claims transformation for property and casualty strains stays on schedule for fourth quarter implementation.

Second-quarter outcomes confirmed the underlying energy of Definity’s enterprise heading into this transaction. Gross written premiums grew 9.1% excluding exited strains. The mixed ratio got here in at 92.9%, higher than firm steerage, whereas working internet revenue reached $98.9 million or $0.84 per share.

Is the TSX insurance coverage inventory undervalued?

Analysts monitoring the TSX inventory forecast income to extend from $4.45 billion in 2024 to $6.71 billion in 2027. On this interval, adjusted earnings are forecast to develop from $2.66 per share to $4.43 per share.

A widening earnings base ought to enable Definity Monetary to lift its annual dividend per share from $0.64 in 2024 to $0.92 in 2027. It means the efficient yield over three years will develop to 1.35%, up from 0.95%.

If the TSX dividend inventory is priced at 25 instances ahead earnings, which is cheap, it may achieve 50% over the following 18 months.