It is during times of macro-economic instability and market volatility when investors should be paying close attention to the key fundamentals of successful investing. These fundamentals centre on acquiring stocks with quality underlying business, which are trading at a discount to the intrinsic value of that business with low earnings volatility, solid growth prospects, and a wide economic moat.
One company which stands out for all of those reasons is Canada’s largest life insurer Manulife Financial Corp. (TSX: MFC)(NYSE: MFC). Compared to many of its peers, Manulife came through the darkest hours of the global financial crisis in relatively good shape, particularly with many of its peers teetering on collapse. Yet Manulife continues to trade at a significant discount compared to those peers.
It has an enterprise-value of five times EBITDA and a forward price-to-earnings ratio of 10 times forecast earnings, making it attractively priced compared to its peers. These include Sun Life Financial Inc. (TSX: SLF)(NYSE: SLF), which has an EV of 10 times EBITDA and a forward PE of 11, as well as MetLife Inc. (NYSE: MET) which has an EV of 9 times EBITDA.
Importantly, Manulife has a wide multifaceted economic moat which helps to protect its competitive advantage. This is because of the step barriers to entry associated with the insurance and funds management industry including significant regulatory hurdles and capital requirements.
The company also completed the acquisition Standard Life Canada, strengthening its footprint in Quebec and further fortifying its economic moat, while boosting its customer base and premiums.
Manulife’s growing strength sees it rated as the world’s 30th largest money manager and the renewed confidence of management is attested to by the 19% dividend hike made at the end of second quarter. This give Manulife a healthy dividend yield of 2.9% coupled with a very conservative and sustainable payout ratio of 29%. Such a low payout ratio leaves plenty of fat to absorb any financial impacts cause by current global macro-economic volatility, while leaving room for further dividend hikes.
Manulife continues to build on its dominant position in the Canadian life insurance industry, which when coupled with its solid economic moat and growing inflows to its funds management business will see earnings grow. More importantly, while investors wait for its share price to appreciate reflecting the true indicative value of its underlying business they will be rewarded by consistent dividends payments offering a healthy yield.
