Could Manulife (TSX:MFC) Stock Make You Rich on the Latest Dip?

Manulife Financial Corp. (TSX:MFC)(NYSE:MFC) looks like a ridiculously cheap generational bargain, but is it really given the COVID-19 risks?

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Financials took a beating during the February-March coronavirus sell-off, and Canadian life insurer Manulife Financial (TSX:MFC)(NYSE:MFC) was not spared, as shares plummeted over 50% from peak to trough. While Manulife stock has recovered some ground, it remains off considerably (around 32%) from its pre-pandemic heights and a country mile (over 56%) away from its peak hit before the Great Financial Crisis.

Simply put, Manulife has been the top stock to avoid in the face of crises. However, I’d urge patient value hunters to forgive the name while shares are hovering around its multi-year lows. Why? Few insurers were spared from this pandemic. It came from out of nowhere, blindsiding many financial firms that had little time to prepare to roll with the punches.

Today, Manulife sports a compelling 6% dividend yield and valuation metrics that are close to the cheapest they’ve been in recent memory. Given Manulife is still in the early innings of its Asia-focused growth story, there’s indeed a lot of long-term upside potential. For the duration of this pandemic, though, Manulife is likely to be a choppy stock, because it’s going to continue feeling the full force of the COVID-19 impact.

Manulife: A dividend all-star stock

Ambrose O’Callaghan, my colleague here at the Motley Fool, thinks that Manulife is a dividend all-star stock that income-oriented contrarians should consider buying at these depths. O’Callaghan noted that Manulife is already beginning its recovery from the COVID-19 socio-economic disaster. Combined with its strong dividend history, O’Callaghan views the stock as a compelling option for those willing to put up with the name’s excessive volatility.

I Think O’Callaghan is right on the money and think Manulife is a solid value pick that could pick up significant traction going into year’s end. The odds of a market-wide growth-to-value rotation is likely, as the economy heals from this crisis and we inch closer to the approval of a safe and effective vaccine.

What if this “new normal” sticks around for years?

If we’re stuck in this “new normal” type of economy for longer than expected, though, Manulife could find itself falling back to the low teens, as such an abnormal or semi-normal recessionary environment does not bode well for the firm’s prospects, given its insurance products are seen as a “nice to have” rather than “must-haves.”

Although I think insurance offerings are more of a must-have for certain folks, tough times and excessive belt-tightening will put unsexy expenses like insurance products at or around the top of the list of things to cut. As such, Manulife could continue to see immense pressure on its top-line growth across North America and Asia until COVID-19 can be eliminated and the economy can heal from this crisis.

At the time of writing, Manulife trades at 0.8 times book value and enough financial flexibility to keep its dividend alive. The nearly 6%-yielding dividend payout is stretched, but this could quickly change if we’re due for a second COVID-19 wave that could wreak even more havoc to an economy that the Fed desperately wants to save.

Foolish takeaway on Manulife stock

Manulife is a dirt-cheap dividend stock at a 20% discount to book value, but unless you’re keen on bagging a bountiful income payer today, I’d prefer waiting for a pullback to $15 for a yield that’s closer to the 7% mark. Manulife is by no means a pricey play, but given profound uncertainties, I’d urge investors to demand a greater margin of safety.

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 Joey Frenette has no position in any of the stocks mentioned.

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