Strong growth in Asia spurs rising earnings, higher dividend for this Canadian stock

This stock is enjoying strong growth thanks in large part to the growing demand for insurance and wealth management across Asia.

In the latest quarter, rising revenues in Asia plus lower U.S. taxes helped the company’s earnings jump by 41%. The firm also stands to benefit from a five-point growth plan that involves cost cutting and greater automation for customers as well as plans to increase its Asian presence and enhance its wealth management business. The company recently raised its dividend, which now yields a high 5.0%.


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

The company also sells other forms of insurance, including health, dental and travel plans. That’s in addition to offering mutual funds and investment management services.

In the quarter ended September 30, 2018, the company’s earnings jumped 41.8%, to $1.5 billion from $1.1 billion a year earlier. On a per-share basis, earnings rose 41.5%, to $0.75 a share from $0.53. The increase is due to strong growth for Manulife’s Asia and Global wealth and asset management businesses. Lower U.S. taxes also contributed.

The company’s earnings in Asia specifically rose 22.2%, to $457 million from $374 million a year earlier. That was the result of 13% annualized premium growth, with an especially strong gain in Japan and Hong Kong. The U.S. saw a 14% increase in annualized premiums, which was offset by a 14% decline in Canada.

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.

Dividend stocks: Five-point growth plan due to cut $1 billion from annual costs by 2022

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.

Starting with the December 2018 payment, Manulife raised its quarterly dividend by 13.6%, to $0.25 a share from $0.22. The new annual rate of $1.00 yields a high 5.0%. The company’s dividend payout ratio is 31.6%. That’s at the low end of its annual target of 30% to 40%.

Manulife has also received approval from the Toronto exchange to buy back up to 2% of its shares outstanding. That will let it repurchase up to 40 million of its shares if it feels its stock is too undervalued by investors.

The stock trades at just 7.1 times the company’s likely 2019 earnings of $2.76 a share.

Recommendation in TSI Dividend Advisor: Manulife Financial is a buy.

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