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When it comes to growth shares, most of us are well aware of the potential for large share price gains. But some investors ignore the dividends that could come along the way. Typically, growth stocks don’t usually pay income, but there are exceptions to that. Here’s one good example right now.
Core operations
I’m talking about Chesnara (LSE:CSN). The firm is a life insurance, pensions and investment business operating across the UK, Sweden and the Netherlands. The stock is up 24% in the past year, with a current dividend yield of 7.09%.
Rather than chasing rapid growth through selling large amounts of new insurance policies, its speciality is buying closed life and pension books from larger insurers. Once acquired, it manages these policies efficiently, extracting value from cash flows that can stretch over decades.
That business model helps explain why investors have become increasingly interested in the shares over the past year. The company has been executing a series of acquisitions that are expected to boost future cash generation. The purchase of HSBC Life UK, now renamed Chesnara Life, has significantly increased scale. It also recently bought Scottish Widows, which adds another large portfolio expected to produce substantial lifetime cash flows.
Capital growth and income
If the acquisitions help to explain some of the move higher in the share price, the generous income can be put down to the financial performance. In 2025, operating capital generation rose strongly, adjusted operating profit increased by more than 40%, and the group’s solvency position strengthened materially. The solvency coverage ratio ended the year at 257%, far above management’s normal operating range of 140%–160%. The boost in cash enables more to be paid out to shareholders.
In terms of dividend sustainability, I can point out that the company has increased its dividend for 21 consecutive years. Over the past five years, cash generation has covered dividend payments by around 1.45 times on average. This is a good metric to consider when trying to forecast whether the dividends can keep being paid to a similar level. Of course, past performance doesn’t guarantee future returns. But stocks with a strong track record are more appealing to me than others that are less proven.
Tempering the optimism
Of course, no dividend is risk-free. Chesnara’s acquisition-led strategy creates execution risk. What I mean by this is that if it buys a company but doesn’t integrate it well into existing operations, it could get messy and costly. Further, regulatory changes affecting life insurers could also reduce profitability, and this is always a risk for the sector.
Yet even with these points, I do think it looks like an attractive purchase for my portfolio and am seriously thinking about adding it. For investors who also want a balance of growth and income potential, it’s a company that could be considered.
Should you invest £5,000 in Chesnara Plc right now?
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Jon Smith has no positions in the shares mentioned.
This story originally appeared on Motley Fool
