Insurers write policies, collect premiums from customers, and then invest those premiums to meet future claims. They’re required to invest significant amounts of that money in fixed-income instruments, namely bonds. That means high interest rates are a boon to their returns. Sun life and Manulife offer investors growth prospects as well as high dividend yields.
What’s more, these two top insurers recently rewarded investors with sizeable dividend hikes. That’s partly due to the contributions of recent acquisitions. We feel these purchases will continue to pay off.
Moreover, the stocks trade at just 10.1 and 8.1 times each company’s 2023 earnings forecast.
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SUN LIFE FINANCIAL, (Toronto symbol SLF; www.sunlife.ca) is Canada’s third-largest life insurance company after Manulife (No. 1) and Great-West Lifeco (No. 2).
With the June 2023 dividend payment, Sun Life will increase your quarterly dividend by 4.2%, to $0.75 a share from $0.72. The new annual rate of $3.00 yields a high 4.6%.
In June 2022, the company acquired DentaQuest for $2.48 billion U.S. That firm is the largest provider of Medicaid dental benefits in the U.S. It has more than 33 million members in 36 states.
In early February, SLC Management, Sun Life’s institutional fixed income and alternatives asset manager, acquired 51% of Advisors Asset Management for $280 million. Advisors Asset Management will become SLC’s U.S. retail distribution arm. It can buy the remaining 49% in 2028.
Sun Life’s earnings in the quarter ended March 31, 2023, rose 24.3%, to $895 million from $720 million a year earlier. Due to more shares outstanding, per-share earnings gained 21.2%, to $1.37 from $1.13. The increase was due to business growth in Canada, the U.S. and Asia, including contributions from its recent acquisitions. However, this was offset by lower asset-management results due to lower stock market values.
Investors can expect the company to earn $6.40 a share in 2023; the stock trades at just 10.1 times that estimate.
The firm recently formed an exclusive 15-year partnership in Hong Kong.
Canadian insurer Sun Life will be the exclusive provider of life insurance solutions to Dah Sing Bank’s 570,000 retail banking customers. Dah Sing has been in business for over 75 years, and has assets totalling more than $41 billion. It also has a distribution network of 40 branches in Hong Kong.
Sun Life will pay $260 million for this exclusive arrangement, with ongoing variable payments to Dah Sing Bank based on the success of the partnership. Sun Life will be able to leverage its existing network of over 2,500 expert advisors.
MANULIFE FINANCIAL CORP. (Toronto symbol MFC; www.manulife.ca) is Canada’s largest life insurer. It also sells other forms of insurance, including health, dental and travel plans; its mutual funds and investment management services further diversify its revenue stream. The company is also a leading insurer in Vietnam, Cambodia, Singapore, and the Philippines.
Manulife raised its quarterly dividend with the March 2023 payment. Investors now receive $0.365 a share, up 11.0% from $0.33. The new annual dividend rate of $1.46 yields a high 5.6%. It also intends to repurchase up to 3% of its outstanding shares over the next year. In 2022, it bought back $1.9 billion of its stock, reducing its share count by 4.1%.
The company has received approval from China’s regulators to acquire the 51% stake in its Manulife Teda Fund Management joint venture that it doesn’t already own from Tianjin TEDA International Holding, a state-owned company. It will pay $240 million for the additional stake. Manulife is the first foreign financial firm to win approval to take 100% control of a mutual fund company in China.
In the quarter ended March 31, 2023, earnings before one-time items rose 9.9%, to $1.53 billion from $1.39 billion a year earlier. With fewer shares outstanding, earnings per share increased 14.5%, to $0.79 from $0.69. Higher earnings from its Canadian and U.S. operations offset declines at its Asian businesses.
The stock trades at a reasonable 8.1 times the company’s projected 2023 earnings of $3.25 a share.
Recommendation in Dividend Advisor: Sun Life Financial Inc. and Manulife Financial Corp. are buys.
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