Investing in any stock comes with risk. We’ve heard that before numerous times, and when it comes to investing in financial stocks, most of Canada’s big banks — barring one unique example — are primarily diversified into the U.S. market, which carries its own risks lately.
What about the insurance market? Manulife Financial Corporation (TSX: MFC)(NYSE: MFC) is the largest insurer in Canada, with nearly 30% of Canadians as clients of the financial behemoth. With that level of market penetration, growth prospects, at least in the domestic market, are limited for the time being, which is part of the reason the company has branched out and expanded into Asia in recent years.
Was expanding into Asia a wise move?
Manulife’s move into Asia is nothing short of sheer brilliance. Asia is experiencing the largest wealth-creation event ever recorded, as drastically improving incomes and standards are creating a massive middle-class generation with both the financial means and desire to purchase the products Manulife offers.
Manulife set up a series of partnership agreements with financial companies across Asia, becoming the preferred, if not the exclusive, provider for the financial products for those banks.
To say that the approach was a success is an understatement.
Over the last few quarters, revenue from the Asia segment has provided ample growth for investors, and the most recent quarter continued this trend; earnings from the Asia segment came in at $427 million, handily beating the $357 million reported in the same quarter last year.
That’s not to say that the other segments of the company failed to produce. The Canada segment reported earnings of $290 million in the most recent quarter, representing a bump of $35 million over the same quarter last year. The Global Wealth and Asset Management Group also showed strong growth, with earnings of $227 million, representing a $39 million improvement over the same period last year.
The weakest showing came from the U.S.-based segment, which came in at $432 million for the quarter, down from the $441 million reported in the same quarter last year.
Overall, the company reported diluted earnings of $0.67 per share for the quarter, only just surpassing the $0.66 per share reported in the same quarter last year
Wait — isn’t Manulife cutting costs?
Despite the strong showing, Manulife announced a series of job cuts in Canada that are intended to improve efficiency. The 700 job cuts are only part of a $1 billion target to cut expenses through 2022. Additionally, Manulife is targeting up to $5 billion in capital savings over the next few years, primarily through asset sales of businesses the company no longer wishes to own.
Manulife will also consolidate its headquarters to a single location to be located in the technology-rich Waterloo region.
Should you invest in Manulife?
Manulife remains an intriguing opportunity for those investors looking for an investment that can provide both growth and income-producing potential over the long term. As Manulife continues to grow throughout Asia, realize cost savings, and reap the benefits of automation in the domestic market, the long-term potential for investment gains is as rich as ever.
If that isn’t reason enough to consider an investment, then Manulife’s quarterly dividend, which currently provides an appetizing 3.50% yield, may be the deal breaker.
