Low p/e, high yields enhance their appeal

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MANULIFE FINANCIAL CORP. $24 (Toronto symbol MFC; Conservative-Growth Payer Portfolio; Finance sector; Shares o/s: 2.0 billion; Market cap: $48.0 billion; Dividend yield: 4.2%; Dividend Sustainability Rating: Above Average; www.manulife.ca) is Canada’s largest life insurance provider. It also sells other forms of insurance, including health, dental and travel plans. That’s in addition to offering mutual funds and investment management services. As of March 31, 2019, Manulife had $1.1 trillion in assets under administration.

Starting with the December 2018 dividend, Manulife raised that quarterly payment by 13.6%, to $0.25 a share from $0.22. The new annual rate of $1.00 yields a high 4.2%. In the latest quarter, the company’s dividend payout ratio was 32.9%—well within its target of 30% to 40%.

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. unit saw a 20% increase in annualized premiums partly due to higher universal life sales.

In a new effort to attract millennials away from Canada’s big banks, Manulife’s banking subsidiary recently launched several new products. They include an unlimited transaction chequing account, a high-interest savings account, a no-fee cash-back credit card, and travel insurance.

Manulife has also formed a new a joint venture with Mahindra & Mahindra Financial Services Ltd. That firm is a leading non-bank lender in India with more than 5 million customers and $11.4 billion in assets under management.

The company will invest $35 million for a 49% stake in the joint venture, which will sell mutual funds and wealth management services to India’s expanding middle class.

The stock trades at only 8.7 times the forecast 2019 earnings of $2.76 a share.

Manulife Financial is a buy.

SUN LIFE FINANCIAL INC. $54 (Toronto symbol SLF; Conservative-Growth Dividend Payer Portfolio, Finance sector; Shares outstanding: 592.2 million; Market cap: $32.0 billion; Dividend yield: 3.7%; Dividend Sustainability Rating: Above Average; www.sunlife.ca) is Canada’s third-largest life insurance company by market cap, behind Manulife Financial (No. 1) and Great-West Lifeco (No. 2). It has $1.01 trillion in assets under management.

With the December 2018 payment, Sun Life raised its quarterly dividend by 5.3%, to $0.50 a share from $0.475. The new annual rate of $2.00 yields a high 3.7%. The company’s payout ratio in the first quarter of 2019 was 41.7%, well within its medium-term goal of 40% to 50%.

In the quarter ended March 31, 2019, 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, demand for insurance in that region continues to grow rapidly as the middle class expands.

The company plans to streamline its asset management operations by bringing them all under the “SLC Management” banner. SLC will have $212 billion in assets under management and provide fixed income and real estate investments to more than 1,000 institutional clients.

The stock trades at just 11.2 times Sun Life’s forecast 2019 earnings of $4.84 a share.

Sun Life is a buy.


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