Insurers like Manulife Financial and Sun Life Financial collect premiums from customers and invest those premiums to meet future claims. That need to cover claims means they invest significant amounts of their funds in fixed-income instruments, primarily bonds. That also means still-high interest rates are a boon to their returns.
Both these insurance stocks offer investors growth prospects as well as high dividend yields. We see each one as a buy.
The first insurer has shown very strong earnings growth with a 19.0% gain in the last quarter, while the other still grew assets under management despite slightly lower earnings. Results like these are why it makes sense to diversify within a sector and benefit from the upside offered by each firm.
The stocks trade at just 10.3 and 10.7 times their respective forward earnings forecasts, making each a low-priced way to generate meaningful dividend income.
MANULIFE FINANCIAL (Toronto symbol MFC; www.manulife.ca) is one of Canada’s largest life insurers. The company also sells other forms of insurance including health, dental and travel plans; Manulife’s mutual funds and investment management services further diversify its revenue stream.
On June 30, 2024, the insurer had $1.48 trillion in assets under administration. Markets outside of Canada—especially Asia (37% of earnings)—increasingly contribute to Manulife’s growth.
In the quarter ended June 30, 2024, per-share earnings rose 9.6%, to $0.91 from $0.83.
Manulife plans to continue its major share buyback program as it keeps divesting from lower-growth assets. In February 2024, the company completed a new long-term care (LTC) reinsurance transaction with insurer Global Atlantic. That firm will reinsure $13 billion in existing Manulife LTC coverage. In April 2024, the company closed a second reinsurance transaction, transferring $5.6 billion of insurance contract net liabilities to RGA Canada.
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The moves free up $2.0 billion in capital, which Manulife plans to return to shareholders through share repurchases.
Meanwhile, the insurer raised its dividend by 9.6% with the March 2024 payment. The stock now yields a high 3.9% and trades at a modest 10.3 times its forecast earnings.
Dividend Stocks: Sun Life Financial pays a higher yield with a promising partnership
SUN LIFE FINANCIAL (Toronto symbol SLF; www.sunlife.ca) sells life coverage, savings, retirement and pension products. It operates in Canada, the U.S., Asia and the U.K., and has $1.46 trillion in assets under management.
The company’s per-share earnings in the quarter ended June 30, 2024, rose 9.6%, to $1.72 from $1.57. The higher profits reflect strong growth in group insurance earnings and other fee income, partly offset by unfavorable morbidity in Canada and higher U.S. dental expenses.
Asia right now contributes about 18% of Sun Life’s earnings. But the company sees the region as a key growth market, encompassing life, health and wealth management businesses in eight Asian markets—China, Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore and Vietnam.
Sun Life has formed a new alliance with Bank of Nova Scotia. The deal lets Bank of Nova Scotia’s high-net-worth clients access alternative investments in real estate, private credit and infrastructure through Sun Life’s SLC Management division. SLC Management is a fixed-income and alternatives asset manager with a global client base of over 1,300 leading institutional investors. It manages $361 billion in assets.
In June 2024, investors saw a 3.8% rise in their quarterly dividend. The shares now yield a high 4.2% while trading at a modest 10.7 times forecast earnings for 2024.
Recommendation in Dividend Advisor: Sun Life Financial Inc. and Manulife Financial Corp. are buys.
