3 Reasons Sun Life Financial Inc. Belongs in Your Portfolio

Sun Life Financial Inc. (TSX:SLF)(NYSE:SLF) reports solid earnings, completes three U.S. acquisitions, and looks to Asia for future profits.

| More on:
The Motley Fool

Financial stocks are usually a safe bet for investors, at least here in Canada. But as bank stocks have stumbled this year, dragged down by a sluggish economy, insurance shares have continued to shine, led by Sun Life Financial Inc. (TSX:SLF)(NYSE:SLF).

Strong earnings

Last week, the Toronto-based insurance company reported second-quarter operating net income of $731 million, or $1.19 per share, up from $488 million, or $0.80 per share a year earlier, easily beating analyst predictions of $0.87 per share.

Continuing the momentum shown in the first quarter, each of the key operating segments demonstrated sequential earnings growth, noted Barclays analyst John Aiken in a report. “While the U.S. and MFS Investment Management earnings were aided by the weakened Canadian dollar, we note that both increased sequentially in U.S. dollar terms. Asia demonstrated strong core earnings growth but the standout remained the domestic operations, which grew earnings well above 20% both sequentially and year-over-year on a core basis.”

Despite the significant lift in earnings, Sun Life maintained its dividend at $0.38 per share after announcing its first dividend hike since the financial crisis last quarter.

Acquisitions

Sun Life CEO Dean Connor believes the company has now entered an “opportunistic growth phase,” following a thorough cleanup of its risk profile after the economic crisis of 2008, which left many insurance companies struggling.
“We’re in a phase now where we are driving growth and we have positioned our balance sheet with enough excess capital and liquidity to take advantage of opportunities that we uncover to help accelerate that growth,” Connor said in an interview with the Globe & Mail.

In the second quarter, Sun Life acquired real estate investment manager Bentall Kennedy Group, investment manager Prime Advisors, as well as fixed income asset manager Ryan Labs, all U.S. companies.

“We set out a deliberate list of companies—asset management firms—that we thought would be a great fit for our strategy,” Connor said, eventually reaching friendly deals with three firms. “Once completed, these acquisitions will be a part of Sun Life Investment Management, and will increase its third party assets to approximately $50 billion,” he added in a statement.

Future prospects

It’s no secret that Canada’s two major insurance companies, Sun Life and Manulife Financial Corp., see Asia as fertile territory. Connor told Reuters Sun Life wants to raise its stake in Birla Sun Life Insurance, a joint venture with Aditya Birla Group, India’s largest insurance company.

Earlier this year, India increased the proportion of foreign investment allowed in insurance companies, creating a potential opening for Sun Life. Connor said the company wants to raise its stake in the Birla JV to 49% from 26% currently. Asia contributed about 13% to Sun Life’s earnings in the second quarter, as net income from the region more than doubled.

All told, the future looks bright for Sun Life, especially if the U.S. Federal Reserve opts to increase interest rates later this year. Despite a high valuation of about $45 per share, Sun Life, up 7% year-to-date, is a clear choice for investors looking for a buy-and-hold financial stock.

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 Doug Watt has no position in any stocks mentioned.

More on Dividend Stocks

money cash dividends
Dividend Stocks

TFSA Investors: Create $313 in Passive Income by Buying in 114 Shares in 3 Dividend Stocks

Canadian investors seeking passive income from dividend stocks should think beyond the first year, but here is what you could…

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

This Canadian Monthly Dividend Stock Pays 11.5% Every Year

Here’s a great Canadian dividend stock you can consider buying now to earn handsome passive income each month.

Read more »

Dividend Stocks

Already up 15.87%: Is Dollarama Stock Still Worth Buying Today?

Is Dollarama stock worth buying as a defensive growth stock, despite inflation normalizing in recent months?

Read more »

grow money, wealth build
Dividend Stocks

Looking for Dividend Stocks in Canada? Check Out These Top Picks

Invest in these two top dividend stocks in Canada for long-term wealth growth through a self-directed passive income stream.

Read more »

value for money
Dividend Stocks

Here are 4 TSX Stocks That Look Like Great Buys for Value Investors

Four TSX stocks with strong fundamentals but underperforming in 2023 are great buys for value investors.

Read more »

The sun sets behind a high voltage telecom tower.
Dividend Stocks

Why TSX Utility Stocks Look Appealing Right Now

TSX utility stocks will likely outperform this year given the impending recession and steady rates.

Read more »

financial freedom sign
Dividend Stocks

2 TSX Stocks for a Legit Shot at $1 Million in 20 Years

Quality TSX stocks such as Brookfield Renewable Partners have the ability to increase long-term investor wealth at a consistent pace.

Read more »

Canadian Dollars
Dividend Stocks

How to Create a Passive-Income Portfolio With Just $6,500

A passive-income portfolio is easy to start and easy to grow, as long as investors remain consistent. You can even…

Read more »