Why This Boring Dividend Stock Is a Good Candidate for Your TFSA

Here is why Manulife Financial Corporation (TSX:MFC)(NYSE:MFC) stock is a good buy-and-hold stock for your TFSA.

| More on:

Insurance companies don’t attract a lot of attention from investors or the financial press. And the main reason of this apathy is the boring nature of their business.

But you may be surprised to know that the world’s most successful value investor, Warren Buffett, credits his success to his insurance portfolio. Insurance has been the main pillar of growth for Berkshire Hathaway Inc. (NYSE:BRK.B)(NYSE:BRK.A) since his 1967 acquisition of National Indemnity. In fact, Buffett specifically referred to the insurance industry as Berkshire’s “most important sector” in his latest letter to shareholders last year.

Value investors love insurance stocks due to their ability to generate steady cash flows and the strength of their balance sheets. If you’re looking to add a solid insurance stock that pays regular dividend in your TFSA, then Manulife Financial Corporation (TSX:MFC)(NYSE:MFC), Canada’s largest insurer, may be a perfect candidate. Here’s why.

Global presence

The company has a large global presence focusing on Asia, where it operates in some of the largest economies of the region, including China, Japan, Hong Kong, Singapore, Vietnam, the Philippines, and Cambodia.

Manulife serves 26 million customers globally, with more than a trillion dollars in assets under management and administration. Manulife’s strong presence in Asia is helping the company grow its earnings, as some of these emerging markets are still underserved when it comes insurance and wealth management services.

In the first-quarter earnings, Manulife Financial reported an 18.3% jump in its profits as it benefited from robust growth in Asia. The company said its total core earnings rose to $1.3 billion, or $0.64 per share, in the quarter ended March 31, from $1.1 billion, or $0.53, a year earlier. Core earnings from the company’s Asia division rose 19.6% to $427 million in the quarter.

Share performance

If you look at Manulife’s share performance over the past 12 months, you’ll notice that its shares didn’t budge. But according to some analysts, the company is probably ready to break out of this sluggish cycle.

Manulife shares are trading at just 8.64 times the forward earnings per share, which is well below the 10-year average of 10.7. That valuation is quite attractive when compared to Manulife’s peers and the largest lenders in Canada. That compelling valuation and a momentum in the company’s Asian business are probably the two main reasons that the majority of analysts now have a “buy” rating on Manulife stock.

With the 12-month analysts’ consensus price target of $30.85, Manulife stock offers a potential 26% upside. Trading at $24.46 and with a dividend yield of over 3.63%, Manulife stock is a good buy-and-hold candidate for your TFSA. The company pays $0.22 a share in quarterly dividend that was raised by 7% in February.

The bottom line

Insurance stocks are attractive buy-and-hold picks for long-term investors. In an environment when interest rates are rising, insurance companies generally do better than other financial stocks. The time appears right to get excited about this old and boring 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 Haris Anwar has no position in any stocks mentioned. The Motley Fool owns shares of Berkshire Hathaway (B shares).

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »