Better Buy: Manulife Financial (TSX:MFC) or Sun Life Financial (TSX:SLF)?

Insurance companies have had a difficult time in recent years, but they might be turning around. Is it time to buy Manulife Financial Corp. (TSX:MFC)(NYSE:MFC)?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It’s been a few years since I invested in insurance companies. It was probably back in 2015 when I last looked at the Canadian insurers as investment options. I had bought them years before that, around 2011. At the time, the world was still recovering from the financial crisis and low interest rates and quantitative easing were assumed to be ending in the not-so-distant future.

Back then, I held both Sun Life Financial (TSX:SLF)(NYSE:SLF) and Manulife Financial (TSX:MFC)(NYSE:MFC). My thesis all those years ago was that interest rates would rise, as the economy got back on its feet. When interest rates rose, I imagined the insurance companies would benefit and their stock prices would take off.

While Sun Life did have a pretty significant run, Manulife floundered. Even when rates did rise, nothing happened to the stocks. Instead of gaining value, they actually pulled back. I became disillusioned with the sector, finally sold my shares, and forgot about them for a few years.

Now, I have decided to look at them again to see if anything has changed. As hard it is to believe, eight years after I initially entered a position in the stock, we are still waiting for rates to rise substantially. The increase in rates was very short-lived — insanely so, in fact. That particular piece of the puzzle seems to be gone for good. However, in spite of the lack of interest rate growth, I thought it might be time to take another look at these investments. Are they good investments today, or should we stay on the sidelines in regards to insurance companies as an investment choice?

Valuation

On a price-to-earnings (P/E) basis, both stocks appear to be reasonably priced. Manulife trades at a P/E of only 11 times trailing earnings, and Sun Life is trading at a slightly more expensive multiple of 16. On a forward earnings basis, Manulife looks even cheaper with a P/E of 8.5. Sun Life still appears to be slightly more expensive with a forward P/E of 11.79 times earnings.

Looking at their price-to-book (P/B) values, Manulife appears to trade closer to its book value with a P/B of 1.13. Again, Sun Life is the more expensive of the two with a P/B of 1.81. Overall, Sun Life appears to trade at a premium to Manulife.

Dividend

Neither dividend is particularly attractive over the other on an absolute yield basis. Manulife currently has a yield of about 3.77%, while Sun Life’s dividend sits at around 3.42%. Really, neither one of these yields is more appealing than another.

Dividend growth is a different story. One important fact is that Manulife slashed its dividend in half during the financial crisis. Investors with long memories, maybe those who had been burned, might not think too kindly of Manulife if they were the recipients of that decreased payout. Sun Life, however, did not slash its dividend.

If that fact does not bother you, considering it was a decade ago, you might solely base your decision on dividend growth. Manulife, post-cut, has been raising its dividend for the past several years, often in the high single digits. Sun Life has also been increasing its dividend. In 2019, Sun Life increased its dividend by 5%.

Operations

Both Manulife and Sun Life have operations in Canada, the United States, and Asia. This leaves both companies with a highly diversified income stream. Their businesses are very similar, leaving little operational difference between the two.

The bottom line

There are two criteria for choosing these stocks, in my opinion, seeing as their diversified operations are very similar. Manulife is the cheaper choice, while Sun Life has had more secure operations and dividend payments over the last couple of decades. Personally, since the yields are pretty close, I would probably choose Sun Life over Manulife.

That being said, right now, I would not choose either. I am frustrated with the low-rate environment, as are the insurance companies. Both of these companies have made excellent strides diversifying their businesses in spite of the macroeconomic challenges, but these operational changes have made them venture into riskier investing realms. For this reason, I would not yet invest in any insurance provider.  

Should you invest $1,000 in Manulife right now?

Before you buy stock in Manulife, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Manulife wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

analyze data
Dividend Stocks

How I’d Invest $28,000 in Canadian Natural Resource Stock to Amass Personal Wealth

Investing in TSX dividend stocks such as Enbridge can help you earn a passive-income stream in 2025.

Read more »

hand stacks coins
Dividend Stocks

Got $400? How I’d Start Building Income With 3 High-Yield Stocks for the Long Term

These high-yield dividend stocks have a solid payout history, making them compelling investments to generate passive income.

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

I’d Put $15,000 in These 3 Dividend-Growth Champions for Increasing Income Potential

Want to offset some volatility? Here are three defensive dividend-growth champions that can generate a juicy yield right now.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Transform Your TFSA Into a Cash-Creating Machine With $7,000

Discover how the Tax-Free Savings Account can be your golden goose for generating cash without losing your investment.

Read more »

monthly desk calendar
Dividend Stocks

How I’d Invest $10,000 in Canadian Value Stocks for Monthly Dividend Income

A $10,000-diversified portfolio of value stocks focusing on dividend safety, yield, growth, and payment schedules can provide a reliable source…

Read more »

a person watches a downward arrow crash through the floor
Dividend Stocks

Is This Correction Your Chance? Top 4 Canadian Dividend Stocks on Sale

Stocks may be down, but now is your chance to get some of these top dividend stocks on sale.

Read more »

Confused person shrugging
Dividend Stocks

Where to Invest $2,500 in the TSX Today

These TSX stocks offer attractive dividends and a shot at decent upside on a rebound.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Invest $25,000 in These Dividend Stocks for $1,956.66 in Annual Passive Income

Dividends stocks can make a huge difference, even if shares don't move an inch. And these might be the best.

Read more »