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3 reasons why I plan to hold Challenger shares for the next decade

I think there are a number of reasons to consider buying Challenger Ltd (ASX: CGF) shares today. Challenger is one of the largest fund managers and the largest annuity provider in the country.

Here are three reasons why Challenger could be a good buy today:

US Fed halts increases

Challenger is one of the most heavily interest-influenced businesses on the ASX. It has a huge balance sheet and its annuities & fixed interest investments are exposed to the interest rate changes.

With the US Federal Reserve seemingly halting its interest rate hike for now, Challenger’s balance sheet will hopefully not suffer any more valuation reductions in the shorter-term.

Lowered Challenger share price

No-one wants to see the share price fall, but seeing as it has it hopefully means higher returns from this point in time. The fall in the share market hurt the Challenger statutory profit and management fees generated, so rightfully Challenger suffered a bit of a hit.

However, the lower share price has decreased the estimated FY20 p/e ratio to 13x and it has increased the grossed-up dividend yield to 6%. These look like attractive starting metrics to me for a business with long-term growth potential.

Long-term thesis remains intact

Although government implementing new rules has been delayed, there is still a positive long-term growth trajectory for Challenger with the number of retirees projected to grow by 40% over the next 10 years, the Challenger market share of new annuities remaining around at least 90% and the superannuation pool continuing to grow strongly year after year with mandatory contributions.

Foolish takeaway

Along with Magellan Financial Group Ltd (ASX: MFG) and Macquarie Group Ltd (ASX: MQG), I think Challenger is one of the best financials on the ASX. The exposure to the ageing demographics of Australia is one of the main reasons why I plan to hold Challenger for at least the next decade.

However, if you want other ideas for strong long term growth and dividends these top ASX stocks could be great choices.

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Motley Fool contributor Tristan Harrison owns shares of Challenger Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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