Which Canadian Life Insurance Company Should You Add to Your Dividend Portfolio Today?

Manulife Financial Corporation (TSX:MFC)(NYSE:MFC) and Sun Life Financial Inc. (TSX:SLF)(NYSE:SLF) both have rising dividends and good quarterly results. Now that rising rates are a reality in the United States and Canada, these stocks should begin to move higher over the long term.

The Motley Fool

If you’re like me, the Canadian insurers have been a bit of a disappointment. Over the past few years, neither Manulife nor Sun Life have done as well as expected. For years, we were told that rising rates would lead to higher profitability for the life insurance company. The stock prices have risen somewhat, but not quite as much as expected.

Canada has a number of insurance companies, but Manulife Financial Corporation (TSX: MFC)(NYSE: MFC) and Sun Life Financial Inc. (TSX: SLF)(NYSE: SLF) are considered to be two of the top insurance companies to own in the Canadian stock market. Both stocks have a number of attractive points, such as their good dividend yields and relatively low valuations. But are they good stocks to hold, and which one should you choose if you had to pick?

Manulife Financial Corporation

Of the two stocks, Manulife generally has the most negativity surrounding it. Its decision to cut the dividend during the financial crisis almost a decade ago still has former investors shying clear of the stock. But the company has performed very well in recent years and is very diversified in multiple geographies, especially Asia and the United States.

Earnings were quite good for the company in Q1 2018. Manulife increased earnings by 22% over the past year and net income increased by 6%. Return on equity increased from 11.1% to 13.4%. The company also managed to lower its leverage ratio. On top of these results, Manulife also raised its dividend 7% so that the dividend at the current price sits at about 3.56%.

Sun Life Financial Inc.

Sun Life has been generally seen in a positive light as compared to Manulife, mostly because it never cut its dividend, although it did halt raising it for a period. Sun Life also operates internationally in the United States and Asia, providing some diversification, although its Asian operations are not as extensive as that of Manulife’s.

Results for the company have been quite good as well. Net income rose over  21% in Q1 2018 year over year and diluted earnings per share rose around 35%. Return on equity rose from 11% to 13.1%, much the same as it did with Manulife. Leverage for Sun Life decreased as well. Overall, the financial picture continues to be strong.

For several years now, however, it has been raising its dividend quite frequently. At the present market price, the dividend is similar to Manulife’s at around 3.41%. This includes a 4% hike in the second quarter.

So which one should investors choose?

Honestly, looking at the results, it seems that you have a couple of options. With the similarity in the results and dividends, you could really close your eyes and point at one to buy. There is simply not that much difference between the two. Manulife appears to be slightly more established in Asia, but Sun Life has a satisfactory presence there as well. Probably the best strategy would be to buy some of each, given the similarity in their performances if you decide to buy.

Of the two, however, Manulife probably has the most upside potential, as it is currently trading at a cheaper valuation. So while they are similar, the fact that Manulife is still coming off a lower base could indicate more upside potential if higher interest rates ever take effect and start moving these stocks higher.

Fool contributor Kris Knutson has no position in any of the stocks mentioned.

More on Dividend Stocks

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Fortis Unveils Its Biggest Spending Plan Ever: $32.2 Billion for Power and Gas Projects

Fortis has unveiled its largest-ever $32.2 billion investment plan, which could support long-term earnings growth and higher dividends for shareholders.

Read more »

person with spyglass looks at ocean horizon
Dividend Stocks

TELUS Stock: What $5,000 Invested Today Could Look Like in 5 Years

TELUS stock’s steep decline, attractive 5.9% dividend yield, and ongoing debt reduction efforts could make a $5,000 investment today worth…

Read more »

senior relaxes in hammock with e-book
Dividend Stocks

A Top TSX Dividend Stock Paying Close to 6% Today for Steady Passive Income

This industry leader has a great track record of dividend growth.

Read more »

Senior uses a laptop computer
Dividend Stocks

Hey Planners: A 5.9% Dividend Stock to Build Your 2027 TFSA Contributions Around

This blue-chip Canadian company offers a 5.9% dividend yield, has a solid distribution and growth history, and maintains a reliable…

Read more »

A plant grows from coins.
Dividend Stocks

5 of the Best Canadian Dividend Stocks to Buy and Hold in Your TFSA

Here's a look at five top Canadian dividend stocks for any income-focused TFSA investor with picks spanning multiple sectors.

Read more »

diversification and asset allocation are crucial investing concepts
Dividend Stocks

What $30,000 Split Between a Bank and a Utility Could Pay in Dividends

An equal bank-and-utility split turns $30,000 into roughly $1,000 in annual dividends, with different businesses supporting the payments.

Read more »

man in suit looks at a computer with an anxious expression
Dividend Stocks

I’d Buy This 3.8% Yielder With My Next $2,000

Brookfield Asset Management (TSX:BAM) stock has a 4% yield.

Read more »

Canadian investor contemplating U.S. stocks with multiple doors to choose from.
Dividend Stocks

Brookfield Asset Management vs. Brookfield Corporation: Which Stock Would I Own?

Brookfield Corporation gets my growth allocation, while Brookfield Asset Management offers more current income with a higher payout commitment.

Read more »