Business for our two top Canadian insurance recommendations, both in Canada and internationally, remains strong. These two stocks have recovered all the ground they lost in March 2020, and we think they’re now poised to move even higher.
Meanwhile, each insurer offers you solid, sustainable dividend yields, which are likely to rise in the near future.
One firm trades at 10.5 times forward earnings while the other trades at just 7.0 times its projected earnings.
SUN LIFE FINANCIAL INC. (Toronto symbol SLF; www.sunlife.ca) lets investors tap Canada’s third-largest life insurance company by market cap after Manulife (No. 1) and Great-West Lifeco (No. 2). Sun Life has $1.36 trillion in assets under management and administration.
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The insurer raised its quarterly dividend with the December 2019 payment. Investors now receive $0.55 a share, up 5.0% from $0.525. The annual rate of $2.20 yields 3.1%.
The company’s payout ratio in the latest quarter was 37%. That’s below its medium-term goal of 40% to 50%, suggesting there’s room for more increases.
In October 2021, the company announced that its U.S. business would acquire DentaQuest for $2.48 billion U.S.
The Boston-based company is the largest provider of Medicaid dental benefits in the U.S. It has more than 33 million members in 36 states. DentaQuest focuses on underserved communities.
Sun Life’s acquisition significantly strengthens its U.S. dental benefits business. In addition, it will more than double its employee benefits revenue south of the border.
The transaction will close in the first half of 2022. The purchase should add $100 million U.S. to Sun Life’s underlying profits after the first year.
In the second quarter of 2021, the company’s revenue decreased 16.6%, to $12.67 billion from $15.19 billion a year earlier. That decline was due to lower income from Sun Life’s investment portfolio. That offset higher net premiums and fee income.
Despite the lower revenue, earnings in the quarter rose 19.5%, to $883 million from $739 million a year earlier. Per-share earnings increased 19.0%, to $1.50 per share from $1.26 per share on more shares outstanding.
Canadian earnings rose 3.0% on positive results from life insurance and wealth management sales. Its U.S. earnings improved 34% due to lower morbidity rates and higher insurance sales across all market segments. Sun Life’s earnings in Asia gained 6.0%, primarily from new business gains and favourable expenses during the quarter.
Sun Life’s projected earnings will likely improve from $6.12 a share in 2021 to $6.75 in 2022.
The stock, which has gained 20% in the past year, trades at a moderate 10.5 times that 2022 estimate.
MANULIFE FINANCIAL CORP. (Toronto symbol MFC; www.manulife.ca) is Canada’s largest life insurer.
Manulife sells other forms of insurance, including health, dental and travel plans; its mutual funds and investment management services further diversify its revenue stream.
As of June 30, 2021, the company had $1.3 trillion in assets under administration. Increasingly, markets outside of Canada—especially Asia—contribute to its growth.
In the quarter ended June 30, 2021, earnings before unusual items rose 7.8%, to $1.68 billion, or $0.83 a share, from $1.56 billion, or $0.78, a year earlier. The rise reflects strong new business gains in Asia, the insurer’s overall investment gains and growth across all its business segments.
Meanwhile, Manulife continues to cut costs by digitizing its operations, In Canada, it has completed the migration of its Group Benefits clients to one administration system. It has also launched new web portals across all of its businesses. Further, in April 2021, Manulife launched a new digital sales platform in Vietnam that lets customers seamlessly purchase health insurance online.
In March 2020, the company handed its investors a 12.0% dividend hike. The stock now yields a high 4.5%.
Meanwhile, the stock trades at a very cheap 7.0 times its forecast 2022 earnings.
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