Get 4.1% and 3.8% yields from Manulife Financial Corp. & Sun Life Financial Inc respectively

Earnings jumped 18.8% in the most-recent quarter at one firm thanks to strong gains in Asia. The company trades are just 8.8 times its forecast 2019 earnings and its dividend yields a high 4.1%

While the other firm’s earnings slid 5.5% on a major loan writedown, it otherwise saw significant growth. The company’s shares trade slightly higher at 11.3 times its forecast 2019 earnings and yield 3.8%

 


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MANULIFE FINANCIAL CORP. (Toronto symbol MFC; www.manulife.ca) is Canada’s largest life insurer.

The company also sells other forms of insurance, including health, dental and travel plans; in addition, it offers mutual funds and investment management services. As of March 31, 2019, Manulife had $1.1 trillion in assets under administration.

In the quarter ended March 31, 2019, earnings jumped 18.8%, to $1.55 billion, or $0.76 a share, from $1.30 billion, or $0.64, a year earlier.

The company’s earnings in Asia rose 20.6%, to $520 million from $431 million a year earlier. That was due to 12% annualized premium growth, with especially strong gains in Japan and Hong Kong. The U.S. saw a 20% increase in annualized premiums partly due to higher universal life sales.

Assets under management and administration for Manulife’s wealth and management business were $644.0 billion on September 30, 2018. That’s 7% higher than a year earlier.

Manulife has entered into agreements with three reinsurers for $13 billion of its riskiest annuity and universal life policies. That should free up $585 million in the fourth quarter, and an additional $470 million in 2019.

Blue Chip Stocks: Five-point growth plan set to cut costs by $1 billion

The company is also cutting about 700 jobs in Canada through voluntary exit programs in the customer service area. That number is equal to roughly 5% of Manulife’s Canadian workforce of 13,000 and 2% of its global workforce of 35,000.

The cuts come as the company aims to automate more customer transactions. Manulife believes those clients should be able to do many of the functions now performed by its staff. These range from processing paperwork to finding information over the telephone.

These initiatives are part of the company’s five-point plan for growth, which also includes moving capital from less-profitable legacy businesses, such as long-term care insurance, to more promising opportunities in asset management and in Asia. Overall, Manulife plans to cut $1 billion from its annual costs by 2022.

Manulife trades at only 8.8 times its forecast 2019 earnings of $2.76 a share. The company raised its quarterly dividend by 13.6%, with the December 2018 payment. Manulife shareholders now receive $0.25 a share for a current high yield of 4.1%.

SUN LIFE FINANCIAL INC. (Toronto symbol SLF; www.sunlife.ca) sells life insurance, savings, retirement and pension products. The company mainly operates in Canada, the U.S., Asia and the U.K. It has $1.0 trillion in assets under management.

In the quarter ended March 31, 2019, Sun Life’s earnings per share fell 5.5%, to $1.04 from $1.05 a year earlier.

Canadian earnings fell 19.7%; the writedown of a loan to bankrupt California utility Pacific Gas & Electric offset stronger business and investment activity. U.S. earnings rose 16.3%. That was mostly due to lower payouts on life insurance policies.

Sun Life’s earnings in Asia fell 4.7%, reflecting mostly unexpectedly higher payouts on policies. Nonetheless, Asia remains an expanding market for the company. Demand for insurance there continues to grow rapidly as the middle class expands and the company adds to its profitable acquisitions in the region.

Blue Chip Stocks: Asian growth potential is strong

Sun Life currently operates in seven Asian countries, including China, India and the Philippines, and has big plans for that business unit. In the 12 months ended September 30, 2018, Asian operations accounted for 17% of its net income. Sun Life feels annual earnings for that unit could double over the next five years, to $900 million from the current $450 million.

The company also recently launched Lumino Health, a digital platform that provides clients with information and ratings on more than 150,000 health providers across Canada. It also offers reviews by existing Sun Life clients. Those offerings are intended to help them live healthier lives.

Sun Life’s stock trades at just 11.3 times the company’s forecast 2019 earnings of $4.84 a share. With the December 2018 payment, Sun Life raised its quarterly dividend by 4.4%, to $0.50 from $0.475. Currently, the stock yields 3.8%.

Recommendation in Canadian Wealth Advisor: Manulife Financial Corp and Sunlife Financial Inc are buys.

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