The Challenger Ltd (ASX: CGF) share price has grown by 301% over the past five years, but I think there's a lot more growth to come.
Challenger is Australia's clear leader in the annuity market. It is estimated to create up to 90% of new annuities.
Here are three reasons why I think Challenger is going to be a long-term winner:
Retiring population
The large baby boomer cohort is starting to reach retirement age. People reaching retirement age are Challenger's main clients because they are looking for a place to turn their capital into a guaranteed source of income.
Over the next 20 years it's projected that the number of people over 65 will grow by 75%. Most companies on the ASX would be very happy with an increase of customers by 75%.
Challenger is very likely to be able to take advantage of this because its products are being sold through more and more distribution channels. Some of the newest channels include platforms with AMP Limited (ASX: AMP) and BT Investment Management Ltd (ASX: BTT).
Mitsui Sumitomo partnership
Challenger recently linked up with Mitsui Sumitomo Primary Life Insurance, the largest provider of foreign currency annuities in Japan. Challenger will be providing 20-year Australian dollar fixed rate annuities.
Japan has a huge retirement population and their retirees have a thirst for yield just like retirees in Australia.
Dividends
Dividends historically make up about half of total share market returns.
Challenger has been a solid dividend growth company for at least a decade. In FY17 it grew its annual dividend by 6% and it currently has a grossed-up dividend yield of 4%.
Foolish takeaway
Challenger is currently trading at 20x FY18's estimated earnings. I think this is an attractive price for a business which has such good growth prospects over the next decade.