Manulife Financial Corp. (TSX:MFC)(NYSE:MFC) slashed its dividend by 50% during the financial crisis, but the company has roared back to health and is now working hard to regain investor confidence.
Let’s take a look at the current situation to see if Manulife deserves to be one of your dividend picks.
Growth
Manulife has been on a buying spree over the past couple of years and the deals could result in a big boost to free cash flow.
Last year Manulife paid $4 billion to buy the Canadian assets of Standard Life Plc. The acquisition added 1.4 million new Canadian customers and launched Manulife into a very strong position in Quebec, where it had struggled to get much traction. Standard Life and Manulife have also agreed to cross-sell products to their global clients.
This part of the deal is very interesting because it gives Manulife access to rapidly growing markets that tend to be challenging for new entrants. One example is India, where Manulife doesn’t currently have an operation, but Standard Life does.
Back in April, Manulife signed a 15-year deal with Singapore-based DBS Bank Ltd. The distribution agreement gives Manulife the exclusive right to sell its insurance and wealth products to DBS customers located in Singapore, Hong Kong, China, and Indonesia.
Closer to home, Manulife recently closed a deal to buy the Retirement Plan Services division of New York Life. This deal adds $56 billion in assets under management to Manulife’s U.S.-based John Hancock group.
Earnings
Core earnings rose 29% in the second quarter compared with Q2 2014, but net income fell 36% due to a $362 million hit on an interest rate move. The issue should be an isolated item, but investors should watch the Q3 numbers carefully to see if more surprises are lurking.
On the bright side, Manulife’s investments in Asia are starting to pay off. Insurance sales in the region jumped 36% in the second quarter compared with the same period last year. The Asian operations also contributed US$5.2 billion in new wealth and asset management gross flows, a 176% jump over Q2 2014.
Dividends
Last year Manulife increased the quarterly dividend by 19% to $0.155 per share. This April the company hiked it again to $0.17 per share.
On an annualized basis, the $0.68 payout generates a yield of 3.3%.
Value play
Manulife has rallied more than 50% in the past five years, but the stock is still trading at a reasonable 10 times forward earnings.
Should dividend investors buy Manulife?
With the Canadian economy facing some headwinds, it is a good idea to look for companies with revenues coming from the U.S. and overseas. Manulife gives investors that exposure, and the dividend-growth rate moving forward could outpace the banks.
I would wait for the Q3 number to come out before buying the stock, but it looks like a good long-term bet at the current valuation.
