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Manulife Financial Corp. (TSX:MFC): Strong Execution Translates Into Strong Results

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Manulife Financial Corp (TSX:MFC)(NYSE:MFC) pleased investors with its third-quarter earnings report earlier this week, reporting significantly better-than-expected EPS of $0.75 (compared to consensus estimates of $0.67).

This resulted in a very strong reaction from its stock, sending it more than 5% higher the day after the report.

But that’s not all.

A few days before its earnings release, the company released a statement saying that it would be increasing its dividend by 14% this year, in a move that came earlier than expected.

Furthermore, the dividend increase is higher than expected and compares favourably to last year’s increase of 7%.

Manulife stock has been trading at a discount relative to other life insurers but also relative to its own earnings growth and potential.

Investor skepticism, short-sellers, and a very public legal dispute has kept investors away despite the company actually reporting good results for some time now.

Reasons to own

With a market capitalization in excess of $50 billion, Manulife is a force to be reckoned with, with a strong past and a very promising future.

In the last five years, the company has seen a 15% compound annual growth rate (CAGR) in core EPS, a 28% CAGR in the business value in Asia, and strong growth in its global wealth and asset management business, with a 20% CAGR in assets under management.

And all this while maintaining a strong capital position.

Manulife continues to see strong growth in wealth and asset management, and in its expansion in Asia, making it so much more than a Canadian life insurer.

As evidence of this, we can just look to the third-quarter of 2018 results. Manulife posted a better-than-expected 27% increase in core earnings, earnings per share of $0.75; the company generated an ROE of 15.1%, up from last quarter and above its targeted range, and a solid improvement.

Core earnings in Asia were up 22% year-over-year, reflecting continued growth in that region and reflecting the general thesis.

Manulife stock is currently trading at a dividend yield of 4.45%.

Not only that, but the dividend has been growing. The dividend was increased five times in the last six years, with the latest one being the recently announced 14% increase.

According to Manulife, a 50-basis-point increase in interest rates would have a $100 million impact on net income and have a meaningful effect on its MCCSR ratio, or its Minimum Continuing Capital and Surplus Requirement Ratio.

The company has been performing above expectations recently and management has bold targets of generating $1 billion of savings by 2022.

Manulife stock still trades at a P/E of roughly 9 times this year’s earnings, which is over 10 times below its peer group and its historical range.

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Fool contributor Karen Thomas has no position in any of the stocks mentioned.

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