Insurers like Sun Life and Manulife write policies, collect premiums from customers, and then 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 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 as a buy.
One has shown very strong earnings growth with a 35.3% gain in the last quarter, while the other still beat expectations despite lower earnings. Results like these are why it makes sense to diversify within a sector and benefit from the upside offered by each firm.
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The stocks trade at just 8.1 and 10.3 times their respective 2024 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 September 30, 2023, the insurer had $1.34 trillion in assets under administration. Markets outside of Canada—especially Asia (30% of earnings)—increasingly contribute to Manulife’s growth.
In the quarter ended September 30, 2023, per-share earnings rose 35.3%, to $0.92 from $0.68. All of the company’s segments reported higher earnings.
In November 2023, Manulife Investment Management announced that it would acquire CQS, an alternative credit asset manager based in the U.K. While the company has not yet revealed the purchase price, CQS had $13.5 billion U.S. in assets under management as of October 31, 2023.
Meanwhile, the insurer raised its dividend by 10.6% with the March 2023 payment. The stock now yields a high 4.9%.
It trades at a very reasonable 8.1 times forecast earnings for 2024.
Dividend Stocks: Another high yield backed by a solid business for both Sun Life and Manulife
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 $1.34 trillion in assets under management.
Per-share earnings in the quarter ended September 30, 2023, fell 1.9%, to $1.59 from $1.62. Profits were hurt by weakness in the U.S. and fewer sales of personal health insurance—but they still beat expectations.
Sun Life recently formed a new alliance with Bank of Nova Scotia. The deal will let 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 December 2023, investors saw a 4.0% rise in their quarterly dividend. The shares now yield a high 4.5% while trading at a modest 10.3 times forecast earnings for 2024.
Recommendation in Dividend Advisor: Sun Life Financial Inc. and Manulife Financial Corp. are buys.
