Investors reacted strongly to TMX Group’s (TSX:X) earnings on Thursday. Shares popped nearly 10% on the market open after the company reported strong earnings for Q2 2019. Shareholders most likely expect continued dividend growth to accompany the higher profits in the next year.
Manulife Financial (TSX:MFC)(NYSE:MFC) received a positive but more muted reaction from shareholders after a mixed earnings announcement. Overall, the stock popped almost 3% on the market open on Thursday. Manulife reported high Asian earnings in an uncertain international trade environment, which might translate into substantial capital gains for the company in the next year.
Manulife Financial reported earnings of $0.72 per share for Q2 2019 aftermarket on Wednesday. The company has built new business value (NBV) strategically by taking advantage of Asia’s growing middle class. In Asia, NBV increased by 7% to $364 million.
Business growth in the United States overshadowed Asia’s growth in Manulife’s Q2 report. U.S. NBV margins improved, growing new business value to $50 million, a 400% increase from the same quarter last year. Unfortunately, these gains were offset by softening domestic revenue in Canada.
Year to date, Manulife’s overall core earnings are higher, foreshadowing another stellar annual shareholder update in six months. In 2018, Manulife increased shareholder equity by 12% and its net receivables by 20%. Continued earnings growth may result in price appreciation and a dividend increase in the next year.
TMX Group reported earnings per share of $1.37 for Q2 2019 before market open on Thursday. On a diluted basis, the earnings results were higher than Q2 2018 by 8%. Net income for Q2 2019 increased to $77.2 million.
The net income growth is attributable primarily to improved margins from both lower operating costs and increased revenue. The company reported a decrease in severance and lease termination expenses during Q2 2018 versus Q2 2019. In addition, TMX’s financial insights and analytics business increased revenue by 4.9% from Q2 2018.
Shareholders may see an increase in dividend next quarter on TMX shares for two reasons. First, the dividend yield on TMX currently stands at 2.22%, below the stock’s five-year average annual dividend yield of 2.87%. TMX leadership will want to maintain its strong dividend performance to compete for capital.
Moreover, TMX dividend payouts have been growing at a slower pace than the company’s retained earnings. Retained earnings are the profits a company has earned after accounting for shareholder payouts. TMX increased its dividend payout by only 7% in February 2019 to $0.62 from $0.58 although retained earnings increased by over 60% in 2018.
Investors may want to wait until the earnings excitement wears down to purchase additional shares in TMX. Nevertheless, earnings suggest the stock is a strong buy for Registered Retirement Savings Plan (RRSP) investors interested in substantial capital gains as well as dividends.
Anxiety over international trade has created significant volatility on the Toronto Stock Exchange, and investors are looking for stocks that will not get burned by the trade war. Financial stocks fit this description, and Manulife is already proving itself to be a robust Asian performer.
TMX and Manulife are both above-average performing investments on the Toronto Stock Exchange. Tax-Free Savings Account and RRSP investors looking for high-performing stocks to invest extra cash cannot go wrong with either stock.
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Fool contributor Debra Ray has no position in any of the stocks mentioned. The Motley Fool owns shares of TMX GROUP INC. / GROUPE TMX INC. TMX Group is a recommendation of Stock Advisor Canada.