Ensure Your Portfolio’s Future With These 3 Insurance Companies

Low interest rates are hurting these companies, but is this a perfect time to buy?

| More on:
The Motley Fool

Since the 2008 financial train wreck, interest rates have been quite low. Consumers and banks have used these reduced rates to their advantage, yet there is one sector that has been struggling: insurance. Insurance companies, which are legally required to have reserve contributions to cover future policy benefits, have been hampered by these interest rates, pushing down rates of return. While the insurance industry managed to outperform several banks in 2012 and 2013, continuing low interest rates have affected the industry’s performance.

Manulife Financial (TSX: MFC)(NYSE: MFC), for example, has had year-over-year revenue growth of -34%. Its competitors Sun Life Financial (TSX: SLF)(NYSE: SLF) and Great-West Life Co. (TSX: GWO) had year-over-year revenue growth of -20% and -13% respectively. If these trends continue it could be rough days ahead for these companies, as interest rates are rumoured to remain at these levels until the third quarter of 2015.

However, this could be the perfect time for investors to start loading up on one or several of these insurance stocks. Once rates begin to increase, these companies will perform better, as better rates translate into higher yields and improved profit margins. On a long-term basis, insurance companies can act as a cornerstone along with banks, giving investors a stable cushion to engage in riskier ventures.

Which company shines brightest?

Manulife’s stock closed Friday at $21.34 and has a 52-week range of $16.21 to $22.22. It carries an average price target of $23.70 with a rating of “outperform”. Its dividend yield is the lowest of the three at 2.4% with an annual payout of $0.52.

Great-West Lifeco is tracking to be the lowest-rated of the three companies with a Friday closing price of $29.60 and a 52-week range of $27.80 to $33.56. There is a bit of space between the Friday close and the current average price target of $32.90, but analysts have placed a “hold” rating on the stock. Great-West does have the highest dividend yield of the three companies, though, sitting at 4.1% with an annual payout of $1.23.

Last and far from least, Sun Life Financial closed Friday at $38.88, right near the top end of its 52-week range of $29.45 to $40.15. The average price target is currently set at $40.80 with a rating on par with Manulife’s of “outperform”. While not quite as high as Great-West, Sun Life offers a dividend yield of 3.7% with an annual payout of $1.44.

No matter which of these companies piques your interest, these interest rates and stock prices are a limited-time offer. It could be some time before these or any insurance companies return to prices that are this buyer-friendly.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Cameron Conway does not own any shares in the companies mentioned.

More on Investing

oil and natural gas
Energy Stocks

Better Buy: Suncor Energy Stock or Canadian Natural Resources

Suncor and Canadian Natural Resources are generating strong profits. Is one undervalued?

Read more »

Arrowings ascending on a chalkboard
Dividend Stocks

3 TSX Stocks With Dividends That Outpace Inflation

Investors that worry about losing buying power due to inflation could put money into these three stocks! They’re known for…

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

Dividend Seekers: Which of These 3 TSX Energy Stocks Is a Better Buy?

Which is a better bet among TSX energy bigwigs?

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

3 Top Value Stocks to Buy in December 2022

Stocks such as Bank of Montreal and NFI Group are trading at attractive and cheap valuations in 2022.

Read more »

edit Person using calculator next to charts and graphs

4 Things to Know About Algonquin Stock in December 2022

Algonquin Power & Utilities (TSX:AQN) stock is down, but did you know these four key facts about it?

Read more »

oil and gas pipeline
Energy Stocks

Better Deal: Enbridge Stock or Pembina Pipeline?

Enbridge and Pembina Pipeline are two top Canadian energy infrastructure stocks. Which is a better deal for income and growth…

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Wednesday, November 30

The TSX is set to end the second consecutive month in positive territory today, as it has already climbed by…

Read more »

funds, money, nest egg

Retirees: 3 Canadian Stocks You Can Confidently Own for the Next 20 Years

Here's why retirees need to plan beyond 20 years in retirement. Fortis Inc. (TSX:FTS), Royal Bank of Canada (TSX:RY) stock…

Read more »