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Should You Buy Manulife Financial Corp.?

The Canadian economy just added more jobs than expected, but the market is still concerned that troubles in the oil patch are going to spill over and hit the rest of the country.

This has pundits worried that the banks could see their fair share of pain, and some investors are looking for options to diversify their financial holdings.

Let’s take a look at Manulife Financial Corp. (TSX:MFC)(NYSE:MFC) to see if it deserves some of your hard-earned cash.

Focus on growth

The Great Recession was an ugly time for Manulife and its investors. The company cut its dividend in half and raised $2.5 billion in capital to stabilize its balance sheet. While this was going on, shareholders watched in horror as the stock price plummeted from $40 to below $10 per share.

Today, the story is very different. The stock is trading above $22 and management is squarely focused on growth.

The company recently spent $4 billion to acquire the Canadian assets of Standard Life Plc. The deal adds 1.4 million customers and instantly makes Manulife Canada’s second-largest provider of group retirement services. The purchase also provides a $6 billion boost to assets under management in the mutual fund business.

Part of the agreement includes a plan for Manulife and Standard Life to cross-sell products to global clients. This is important for investors because international markets offer huge potential and Manulife wants to continue expanding its presence outside of North America, especially in Asia.

On April 8, Manulife announced a deal with Singapore-based DBS Bank Ltd. The two companies have entered into a 15-year distribution agreement focused on Singapore, China, Hong Kong, and Indonesia.

The exclusive partnership will combine DBS’ large Asian banking franchise with Manulife’s strong portfolio of insurance and wealth management offerings. Manulife is paying DBS US$1.2 billion and expects the agreement to be accretive to earnings in 2017. The deal will take effect at the beginning of next year.

Manulife already has a strong presence in these countries, as well as Japan, the Philippines, and Vietnam.

Earnings and dividends

Manulife earned $3.5 billion in 2014, a 12% year-over-year gain. Total assets under management jumped $92 billion to hit a record $691 billion. The company finally increased its dividend in 2014. The 19% hike brought the distribution back to $0.62 per share, which currently yields about 2.8%.

Risks

Manulife is not completely isolated from the troubles facing the Canadian market, but its exposure is small relative to its overall investments.

Canadian residential mortgages represented less than half of Manulife’s $39.5 billion mortgage portfolio at the end of 2014. Total invested assets were about $270 billion.

On the energy side, oil and gas accounted for just 1% of total invested assets and 8% of the debt portfolio.

Manulife missed Q4 expectations, so investors will have to watch the Q1 2015 numbers carefully to look for signs of further short-term pressure.

Should you buy?

Low interest rates continue to hamper earnings but the market expects to see a rate hike in the U.S. by the end of 2015, and that could spark a rally in insurance stocks.

Manulife will probably boost the dividend again this year. The payout ratio is still very low which means management can afford to return some more cash to investors while it continues to deploy capital on growth initiatives.

The potential in Asia is appealing, but the region still only represents a small part of overall assets. I wouldn’t dump all your bank shares to buy Manulife, but it might be a good time to take a small position in the stock if you have some extra cash.

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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 Andrew Walker has no position in any stocks mentioned.

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