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Which Is Better for Dividend Investors: Manulife Financial Corporation or Sun Life Financial Inc.?

It’s probably the most boring business around: insurance. In short, there is nothing sexy about this industry. Unlike technology or junior mining stocks, investors don’t get excited about buying insurance companies.

But that would be a mistake. There’s a reason the world’s greatest investor, Warren Buffett, built his Berkshire Hathaway empire around insurance. When done right, it’s a safe business that gushes tons of cash flow.

Here in Canada, Manulife Financial Corporation (TSX:MFC)(NYSE:MFC) and Sun Life Financial Inc. (TSX:SLF)(NYSE:SLF) dominate the industry. And after tripping up during the previous financial crisis, both firms are finally starting to turn the corner.

Of course, that leaves the obvious question: Which insurance giant is a better bet for income investors? Let’s see how the two companies stack up on a range of measures.

1. Yield: For most income investors, current yield is the first and only metric they evaluate. Today, Sun Life pays out a respectable 3.6%, which is the highest of its peers. So, if you’re looking for current income, this stock is your first choice. Winner: Sun Life

2. Dividend growth: Of course, yield isn’t everything. We have to dig deeper to evaluate the quality of a payout. Dividend growth is equally important because we want to ensure our income can keep up with inflation. Over the past decade, Sun Life’s payout has grown by about 4% annually. Manulife, in contrast, has not delivered any dividend growth since 2005. Winner: Sun Life

3. Earnings growth: Over the long haul, dividend hikes can only come out of growing profits. That’s why earnings growth is the best predictor of how fast a company will be able to raise its distribution. With interest rates expected to rise, insurance profits could soon soar. Both Manulife and Sun Life are projected to increase earnings per share by about 10% annually over the next five years. Winner: Draw

4. Dividend history: Of course, we don’t want to see our income stream suddenly dry up. That’s why reliability is perhaps the most important thing to consider, especially for those of us who rely on dividends to pay the bills. Thankfully, both insurers have long track records of rewarding shareholders. Manulife and Sun Life have paid distributions to investors every year since 1999 and 2000 respectively. Winner: Manulife

5. Safety: Both of these distributions are rock solid. Sun Life only pays out half of its earnings to shareholders as dividends, which gives the company plenty of financial wiggle room if business sours. However, Manulife has even more protection, given that the firm pays out less than a third of its earnings. Winner: Manulife

6. Valuation: In the insurance business, we can use a company’s price-to-book ratio as a quick and dirty measure of value. Book value is the accounting number that totals all of the company’s assets, less all senior claims, to common equity (such as the company’s liabilities). Today, Manulife and Sun Life trade at 1.3 times and 1.4 times book respectively. That’s slightly below their historical averages, though in line with peers. Winner: Manulife

And the results are in…

As I said, Manulife and Sun Life are both blue-chip stocks. You really can’t go wrong buying either.

That said, Manulife’s cheaper price and relative safety gives it a slight edge from my point of view. If you can only own one insurance company, this is the stock to hold.

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Fool contributor Robert Baillieul has no position in any stocks mentioned. The Motley Fool owns shares of Berkshire Hathaway.

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