The Asian middle class is saving and investing more thanks to the region’s rapid growth, and some Canadian stocks are making the most of this opportunity.
One insurance giant is expanding aggressively in Asia, with operations in seven countries and plans to open in two more. The resulting boost to its earnings should help it keep raising a dividend that currently yields 3.5%. And the stock trades at a modest multiple to earnings.
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SUN LIFE FINANCIAL INC. (Toronto symbol SLF; www.sunlife.ca) originally began operating as The Sun Insurance Company of Montreal in 1865. It’s now Canada’s third-largest life insurance company by market cap, behind Manulife Financial (No. 1) and Great-West Lifeco (No.2).
The company mainly sells life insurance, savings, retirement and pension products to individuals and corporations. Canada is its largest market, accounting for 37% of its earnings. Sun Life also operates in the U.S. (20% of earnings), Asia (11%) and the U.K. (5%). The remaining 27% of earnings comes from the company’s investment management for institutional investors in several countries.
Insurance companies invest the premiums they receive in stocks, bonds and other securities. They use the funds from these investments to cover future claims. However, gains and losses on its investment portfolio can distort its revenue.
That’s why Sun Life’s revenue fell from $17.6 billion in 2012 to $13.9 billion in 2013. Revenue then rebounded to $26.8 billion in 2014, before falling to $19.3 billion in 2015. It then jumped to $28.6 billion in 2016.
Overall earnings gained 83.7%, from $1.27 billion in 2012 to $2.34 billion in 2016. Due to more shares outstanding, earnings per share rose 77.6%, from $2.14 to $3.80.
In the quarter ended September 30, 2017, Sun Life’s earnings per share rose slightly, to $1.05 from $1.04 a year earlier.
Canadian earnings fell 1.8%, due to higher death-related claims and lower investment gains. In the quarter, U.S. earnings increased 19.3%. That reflects an increase in policy prices and better claims management. It also offset the overall shift in the U.S. mutual fund industry from active to passive investment strategies. That has lowered fees and profit margins.
Blue Chip Stocks: U.S. dental insurance another area of aggressive growth
Sun Life continues to expand in Asia, where earnings rose 12.5% in the latest quarter. Demand for insurance is growing fast there as the middle class expands and the company continues to make profitable acquisitions in the region.
Part of Sun Life’s growth is due to acquisitions, particularly in Asia. Earlier this year, it increased its ownership of Sun Life Vietnam to 100% from 75%. Last year, it increased its 26% stake in Birla Sun Life (India) to 49% and its interest in PT CIMB Sun Life (Indonesia) from 49% to 100%.
The company now plans to expand into Singapore and Thailand; it currently operates in seven Asian markets, including China, Hong Kong and the Philippines.
Sun Life recently agreed to buy The Premier Dental Group, a Minnesota-based seller of dental-insurance products. The company has yet to disclose terms of the deal. Premier Dental also operates in Florida and the Midwest, including Wisconsin and Missouri.
The sale makes Sun Life the second-largest dental insurer in the U.S. In 2016, it bought employee benefits leader Assurant Inc. for $975 million U.S. Adding dental-insurance products will boost profits and let it cross-sell them to its existing clients.
With the December 2017 payment, Sun Life raised its quarterly dividend by 4.6%, to $0.455 from $0.435. The company has now increased its dividend five times since the start of 2015. It aims to pay out between 40% and 50% of its earnings before unusual items as dividends.
Currently, the stock yields 3.5%. It trades at just 11.8 times the company’s forecast 2018 earnings of $4.36 a share.
Recommendation in TSI Dividend Advisor: Sun Life is a buy.
Thanks for your question. Brokers often use ‘hold’ or ‘reduce’ or ‘source of cash for new buying’ as a euphemism for ‘sell’. That’s because they don’t want to offend potential underwriting or corporate finance clients, who generate far more profit than individual investors. We stay out of the underwriting and corporate finance businesses, so we don’t suffer from this conflict of interest. If we think that a stock’s prospects make it a sell, we say so.
We switch our buy recommendations to ‘hold’ when we feel there are better choices for new buying, but we still like the stock’s longer-term prospects. After all, every sale involves some costs. Then too, sometimes we underestimate our buys and they do better than we expect. So, as a general rule, we advise against treating our ‘hold’ recommendations as sells.
However, if you need to sell something from your portfolio, you are probably better off selling our ‘holds’ than our buys. In addition, if you find that we see most of your stocks as ‘holds’, then it might be a good idea to trade in some of your stocks for those we recommend as buys. TSI Research.
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Looks like this insurance co. Asian business will have above average growth potential.
Thanks for your comment! Yes, Asia is a major source of growth for Sun Life Financial. — TSI Research
You mostly have articles saying buy, or hold. I have yet to see one that recommends a sell. It’s mostly buy, buy, buy. What’s going on? TSI Research.
Thanks for your question. Brokers often use ‘hold’ or ‘reduce’ or ‘source of cash for new buying’ as a euphemism for ‘sell’. That’s because they don’t want to offend potential underwriting or corporate finance clients, who generate far more profit than individual investors. We stay out of the underwriting and corporate finance businesses, so we don’t suffer from this conflict of interest. If we think that a stock’s prospects make it a sell, we say so.
We switch our buy recommendations to ‘hold’ when we feel there are better choices for new buying, but we still like the stock’s longer-term prospects. After all, every sale involves some costs. Then too, sometimes we underestimate our buys and they do better than we expect. So, as a general rule, we advise against treating our ‘hold’ recommendations as sells.
However, if you need to sell something from your portfolio, you are probably better off selling our ‘holds’ than our buys. In addition, if you find that we see most of your stocks as ‘holds’, then it might be a good idea to trade in some of your stocks for those we recommend as buys. TSI Research.