The Edinburgh-based firm's 1.3 million shareholders will get a total of £1.75bn from the proceeds of the surprise sale, equivalent to 73p per share paid out in either cash or stock.
Many analysts in the City raised their target prices for Standard Life shares to reflect the news that the firm was getting rid of its biggest business outside of the UK and forging a distribution tie-up with the buyer, Quebec-based insurer Manulife.
"The disposal of Canada reduces Standard Life's risk profile, in our view, moving the stock closer to an asset management profile. We expect this to be taken well," said analysts at Bank of America Merrill Lynch, adding that the sale price was £700m higher than the estimated value of the business.
"We view this as a fabulous deal for shareholders," said Panmure Gordon analyst Barrie Cornes.
Standard Life unveiled the deal late on Wednesday, telling shareholders that it achieved a sale price of 19.5 times the unit's earnings this year.
Shares in Standard Life were trading at 15 times earnings before the announcement.
FTSE 100-quoted Standard Life's stock closed 8.05 per cent higher yesterday at 417.2p, valuing the entire company at £9.98bn.
The return of cash to shareholders, which will follow the deal's completion in the first quarter of 2015, takes overall investor returns to £3.5bn, or 147p per share, since 2010.
The 189-year-old company abandoned its status as a mutual and floated on the stock market in 2006.
More than 2,000 of Standard Life's 8,500 employees will move company as part of the Canadian sale to Manufacturers Life Insurance Company, a subsidiary of Manulife.
The remaining £450m generated by the deal will be kept within Standard Life for "general corporate purposes".
The Canadian operations being sold manage almost £50bn for the company and its clients.
Manulife, which provides financial services to one in five Canadians, will continue distributing Standard Life Investments' funds in Canada, the United States and Asia through a collaboration agreement.
Standard Life Investments will also set up a new office in Toronto to serve its remaining clients in the country.
"Standard Life has operated in Canada for 180 years, and so the disposal is a monumental one in the history of the company," said Nomura analyst Ben Bathurst in a research note yesterday. "Importantly, it represents further progress in the transformation towards a fee-based asset gatherer."
Analysts at credit ratings agency Fitch said the deal would weaken Standard Life's credit profile, as it made the firm less diverse and removed about one-third of the group's operating profit based on 2013 figures.
However, Fitch added that the disposal moves the firm's focus towards lower-risk businesses.
As part of its shift towards asset management, Standard Life bought fund manager Ignis for £390m in a deal that closed in June.
Yesterday's disposal also represents a windfall for chief executive David Nish, who stands to gain £1.63m through his shareholding in the company, and Standard Life Investments boss Keith Skeoch, whose shares will generate £1.37m.
The executives, like other investors, can take the return in either cash or shares, offering a choice between capital and future income.
"We have transformed our Canadian operations into a business which has consistently delivered strong results, contributing to the overall success of the group," said Mr Nish in a statement.
"As a result, the Canadian business is now a much more attractive proposition and the sale allows us to realise fully the value of the business for our shareholders."