Whenever we think about investing for retirement, people always say "you need passive income so invest in dividend shares." The only catch for me, though, is that a lot of those stocks are in steady businesses (such as banking or telecoms) that pay stable dividends, but not necessarily very fast-growing ones.

So, when I think about investing for retirement, I like to frame it in terms of investing in shares where growth is strong and dividends are growing fast, but also have the potential to grow even further into the future.

A man holding coins spilling through his hands.

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In that respect, I love the Asian life and health insurance behemoth AIA Group Limited (SEHK:1299). It operates in 18 markets in Asia-Pacific and is the largest listed life insurer in the world – serving 33 million individual policyholders and over 16 million members of group insurance schemes. It's a true giant (with a market cap of around US$134.5 billion) and I believe it is one of the most underappreciated dividend stocks in the market today.

Unbelievable structural growth

If you want a stock to provide you with income, you want a rock-solid company operating in a business that you know for certain will provide future growth; insurance in Asia is exactly that. And in AIA, you have a company that has a presence all over the region. It has an unprecedented opportunity to keep growing as nearly half a billion people in the region enter the middle class (by reaching an annual income of US$10,000).

What's more, AIA operates in a business – life and health insurance – that governments in Asia are keen to promote given the lack of social safety nets, such as free healthcare, that exist in the West. Combine that with the US$51 trillion mortality protection gap in Asia and you have a recipe for long-term success. Which brings me to its dividend.

Powering up dividends

At first glance, AIA's dividend yield of around 1.3% isn't all that impressive but the growth in its dividend has been absolutely stunning.

Its dividend has grown from 33 HK cents per share in 2011 to 123.5 HK cents per share in 2018. This equates to a dividend per share (DPS) growth rate of 370% over the eight-year period or a compound annual growth rate (CAGR) in its dividend of a whopping 17.9%.

What's even more amazing is how low its dividend payout ratio is. As a percentage of its operating profit after tax, the company only pays out around 30% in dividends. This gives it huge headroom to keep raising its dividend which, according to management, it will do by pursuing a "prudent, sustainable and progressive dividend policy".

Growing dividends for retirement

With the average life expectancy globally expected to keep rising, putting your money into a traditional dividend share that has a static payout and limited room to raise its dividend may not be sufficient for a reliable flow of retirement income.

That's why I strongly believe that if we want to invest responsibly for retirement income we need to look at the business, its cash flows and, most crucially, the growth track record of dividends. Given all this, AIA is one my top stocks for those of us looking to invest prudently for retirement with the long term in mind.

A version of article originally appeared on our Fool Asia site. For more coverage like this head over to Fool.hk.en.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.