Manulife Financial (TSX:MFC)(NYSE:MFC) has long been heralded as the heavyweight insurer of the Canadian market. That label is largely attributed to the fact that Manulife holds a massive amount of the Canadian market; over one-third of Canadians are already a client of Manulife in one way or another. As impressive as that sounds, that dominant position also means that the Canadian market is saturated, a fact that has led Manulife to look to foreign markets in recent years for growth, specifically Asia.
While it’s no secret that Manulife’s venture into Asia has proven successful, a recent shift in strategy by the company could usher in even more growth for Manulife, and not just from the emerging markets in Asia.
Here’s a look at Manulife’s recent earnings announcement and where that new opportunity lies.
Strong earnings in Q4 from Manulife
Manulife announced results for the fourth fiscal of 2018 last month, and the results were nothing short of stellar, with the company posting core earnings of $1.337 billion, or $0.65 earned per common diluted share, far surpassing the $1.205 billion, or $0.59 earned per common diluted share reported in the same quarter last year.
Spearheading those results was the continued strength realized from Manulife’s operations in Asia as new business within that segment realized a 19% increase over the same period last year, culminating in US$1.1 billion in new business over the course of fiscal 2018.
Other factors that contributed to those stellar results included a lower U.S. tax rate as well as Manulife’s ongoing multi-year efforts to increase efficiency through the use of technology, which have finally begun to bear fruit.
On an annual basis, core earnings for fiscal 2018 hit $5.6 billion, reflecting a whopping 23% improvement over fiscal 2017, reflecting the highest amount the company has earned in its history.
Where is that new opportunity?
Based on the above results, few would argue that Manulife doesn’t warrant at least a small position in your portfolio. The company is on a tear so far in 2019, with the stock up 17% so far, and Manulife’s quarterly dividend, which currently amounts to $1 per share on an annual basis provides a healthy, if not attractive yield of 4.42% that has seen annual bumps going back six consecutive years.
As I mentioned above, a good chunk of Manulife’s growth in recent years has stemmed from the company’s focus on the growing markets in Asia. Specifically, the region is experiencing the largest wealth-creation event ever, as a massive middle-class is emerging with both the resources and demand for the financial products that Manulife can offer.
Manulife caters to that growing demand rapidly through a series of well-executed market-specific agreements with financial institutions that set Manulife up as the preferred, if not the exclusive provider of those services in those markets.
It’s an arrangement that continues to work well, but Manulife is now looking at a different segment of the market to target, which literally has billions at its disposal to throw at the markets – the rich.
Specifically, Manulife’s Wealth Management arm is going to be doubling in size. The clientele within that segment typically have seven-figure amounts or higher to invest, and there is a growing demand to cater to that segment of the market. In fact, Manulife’s current unit provides services to nearly 400 customers with a portfolio size that averages out to near $3 million.
Also worth noting is that Manulife isn’t alone in this regard; over the course of the past two years, we’ve seen at least two of Canada’s Big Banks acquire investment firms to bolster their own wealth management arms and take a bit of the super-rich market that is measured in the billions.
Specifically, Toronto-Dominion Bank purchased Greystone Capital Management last summer for $800 million, and Bank of Nova Scotia acquired both Jarislowsky Fraser and MD Financial Management over the past year.
If this latest venture by Manulife is anywhere near as successful as the company’s move into Asia was, then long-term investors can expect handsome returns for years to come.
In my opinion, Manulife remains an excellent long-term opportunity for both income and growth-seeking investors.
