Two of Canada’s largest insurers, Sun Life Financial and Manulife Financial, are well-positioned for significant growth with ongoing earnings increases. In the past few years, both firms have expanded operations in Asia including China, Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore and Vietnam.
Both companies also continue to benefit from the aging North American population and rising demand for health insurance and wealth management services.
We expect these factors to drive the company’s earnings—and your dividend—over the next several years. The valuations make them especially attractive: one stock trades at just 10.2 times its forward earnings forecast and the other at 10.6 times its own estimate.
MANULIFE FINANCIAL(Toronto symbol MFC; www.manulife.ca) is Canada’s largest life insurer. It’s also a leading insurer in Vietnam, Cambodia, Singapore, and the Philippines.
The company also sells other forms of insurance besides life insurance, including health, dental and travel plans; Manulife’s mutual funds and investment management services further diversify its revenue stream.
In the quarter ended December 31, 2024, earnings rose 7.6%, to $1.91 billion from $1.77 billion. Due to fewer shares outstanding, per-share earnings gained 12.0%, to $1.03 from $0.92. That gain was due to stronger earnings at its Canadian, Asian and Global Wealth and Asset Management businesses; they were only partly offset by weaker results in the U.S.
Manulife plans to continue its share buyback program as it keeps divesting from lower-growth assets.
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For instance, in February 2024, the company completed a new long-term care (LTC) reinsurance transaction with insurer Global Atlantic. In April 2024, it closed a second reinsurance transaction, this time with RGA Canada.
The moves freed up $2.0 billion in capital, which Manulife plans to keep returning to shareholders through share repurchases. It, in fact, bought back $3.3 billion of its stock in 2024.
The stock trades at a moderate 10.2 times the $4.18 a share it’s forecast to make in 2025.
Manulife is raising your quarterly dividend by 10.0% with the March 2025 payment. Investors will receive $0.44 a share instead of $0.40. The new annual rate of $1.76 yields 4.1%.
Dividend Stocks: Another high yield for safety- and income-focused investors
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 $1.54 trillion in assets under management.
The company’s per-share earnings in the quarter ended December 31, 2024, were unchanged at $1.68.
Sun Life recently announced a new three-year partnership with Tribal Wi-Chi-Way-Win Capital Corporation (TWCC) to provide Contact Centre services for the Canadian Dental Care Plan. TWCC is owned by five Manitoba Tribal Councils and several independent Manitoba First Nations. It provides business services and customer care solutions to clients across Canada. This deal will help Sun Life cross-sell additional products to this group.
The company’s earnings should rise 13.2%, from $6.66 a share in 2024 to $7.54 in 2025. The stock trades at a moderate 10.6 times that 2025 estimate. The shares yield a high 4.2%.
Recommendation in Dividend Advisor: Sun Life Financial Inc. and Manulife Financial Corp. are buys.
Comments
Richard
I am interested to know how these two insurers fair out in a declining interest rate environment. I was under the impression their profit comes from the premiums paid to them that are reinvested in bonds etc. Also, how do MFC and SLF stack up against a company like Intact which is one of Pat’s recommendations as well.
The relationship between insurer performance and interest rates is a complex one.
On the one hand, when interest rates are higher, insurers make more money by taking advantage of the higher rates available on fixed-income instruments.
However, as interest rates are rising, that decreases the value of existing, lower-earning bonds in insurers’ portfolios. Long-term bonds and other interest-rate-sensitive investments are affected more than shorter-term investments, and life insurers tend to hold long-term bonds.
Low interest rates make life savings products like annuities less attractive.
Meanwhile, eventually, higher interest rates tend to slow economic conditions—and that lowers demand for insurance from both individuals and businesses.
However, when central banks reduce interest rates in order to encourage businesses and consumers to borrow more money, insures should benefit.
So rather than try and predict the positive/negative effect of higher interest rates…Pat still feels that you are better off keeping your portfolio well-balanced among all five economic sectors.
Meanwhile, MFC and SLF are life insurers and Intact operates in property and casualty. All three have their appeal for investors, and we see all three as buys.
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I am interested to know how these two insurers fair out in a declining interest rate environment. I was under the impression their profit comes from the premiums paid to them that are reinvested in bonds etc. Also, how do MFC and SLF stack up against a company like Intact which is one of Pat’s recommendations as well.
Thanks for your question.
The relationship between insurer performance and interest rates is a complex one.
On the one hand, when interest rates are higher, insurers make more money by taking advantage of the higher rates available on fixed-income instruments.
However, as interest rates are rising, that decreases the value of existing, lower-earning bonds in insurers’ portfolios. Long-term bonds and other interest-rate-sensitive investments are affected more than shorter-term investments, and life insurers tend to hold long-term bonds.
Low interest rates make life savings products like annuities less attractive.
Meanwhile, eventually, higher interest rates tend to slow economic conditions—and that lowers demand for insurance from both individuals and businesses.
However, when central banks reduce interest rates in order to encourage businesses and consumers to borrow more money, insures should benefit.
So rather than try and predict the positive/negative effect of higher interest rates…Pat still feels that you are better off keeping your portfolio well-balanced among all five economic sectors.
Meanwhile, MFC and SLF are life insurers and Intact operates in property and casualty. All three have their appeal for investors, and we see all three as buys.