2 Insurance Stocks to Buy as Interest Rates Remain High

Undervalued insurance stocks like Manulife Financial Corp. (TSX:MFC) are well positioned for growth in this insurance rate climate.

| More on:
Investor wonders if it's safe to buy stocks now

Source: Getty Images

Canadian investors should keep their eyes on the insurance industry in 2023 and beyond. This is especially true in what had developed into a vastly different interest rate environment compared to the status quo for most of the 2010s and early 2020s. The Bank of Canada (BoC) elected to remain in a holding pattern on April 12, keeping the benchmark interest rate at 4.5%. However, this is still its highest point since before the advent of the 2007-2008 financial crisis and the Great Recession. Today, I want to look at two insurance stocks that are worth buying in this environment.

The insurance industry is positioned to benefit in a high interest rate climate. This has the potential to bolster capitalization ratios for insurers that offer long-dated interest rate guarantees to its consumer base. BoC governor Tiff Macklem recently stated that Canadians should expect monetary policy to remain restrictive until the middle of this decade. Investors should maintain interest in top insurance stocks. Let’s jump in.

This is the first cheap insurance stock I’d buy in this interest rate climate

Manulife Financial (TSX:MFC) is a Toronto-based company that provides financial products and services in Asia, Canada, the United States, and around the world. Shares of this insurance stock have increased 7.2% month over month as of close on April 18. That has pushed the stock up 7.5% so far in 2023.

This company released its fourth-quarter (Q4) and full-year fiscal 2022 earnings on February 15, 2023. Manulife saw core earnings drop 7% year over year to $6.2 billion. The company reported Asia new business value of $1.34 billion — down from $1.66 billion in the prior year. However, Canadian and United States new business value both delivered solid growth in the year-over-year period.

Shares of this insurance stock currently possess a very favourable price-to-earnings (P/E) ratio of 7.1. Meanwhile, Manulife offers a quarterly dividend of $0.365 per share. That represents a strong 5.5% yield.

Here’s another top insurance stock to target with interest rates holding high

Sun Life Financial (TSX:SLF) is the other insurance stock I’d look to buy in this high interest rate climate. This Toronto-based financial services and insurance company provides savings, retirement, and pension products to a worldwide client base. Its shares have climbed 2.3% so far in 2023. However, the stock is down 5.1% year over year.

Investors can expect to see Sun Life’s Q1 fiscal 2023 earnings in early May. We got to see this company’s final batch of fiscal 2022 earnings on February 8, 2023. In Q4 2022, Sun Life delivered underlying net income of $990 million — up 10% compared to the previous year. Meanwhile, underlying net income increased 4% to $3.67 billion for the full year. It posted insurance sales of $4.32 billion in 2022 compared to $3.67 billion for the full year in fiscal 2021.

This insurance stock last had an attractive P/E ratio of 12. It is trading in more favourable territory compared to the industry average. Sun Life currently offers a quarterly dividend of $0.72 per share, which represents a solid 4.4% yield.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

Parents: Here’s How to Boost Your Monthly Income

Parents, you have enough to worry about. But if you can put aside even $40 per month, that can create…

Read more »

Technology, internet and networking, security concept
Tech Stocks

Top Cybersecurity Stocks for June 2023

Canadian investors should look to snatch up top cybersecurity stocks like Absolute Software Corp. (TSX:ABST) to start the month of…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Looking for a Reliable Retirement Income? Consider These Dividend-Paying Stocks

Investors looking to establish a reliable retirement income have no shortage of options to choose from. Here's a trio of…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

3 Oversold Dividend Stocks That Could Make You Rich When They Bounce Bank

Don't wait around for these oversold dividend stocks to bounce back, each certainly will, which is why now is the…

Read more »

A small flower grows out of a concrete crack.
Dividend Stocks

Down 8% Last Month, Canadian Tire Stock Is a Deal Heading Into June 2023

May wasn't a good month for the stock, but June has been different from the beginning and may present an…

Read more »

Canadian Dollars
Dividend Stocks

Need Passive Income Right Now? Turn $20,000 Into $152 Every Month

This dividend stock may be down now, but offers substantial passive income through its 9.31% dividend yield as of writing!

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

Is Exchange Income Stock a Buy?

Even within an industry, some stocks might be worth considering in certain market conditions, while others may be avoided.

Read more »

online shopping
Tech Stocks

Shopify Stock Rose 22% Last Month: Is it Still a Buy in June 2023?

Shopify (TSX:SHOP) stock rose 22% in the last month but is down from 52-week highs. So, is it time to…

Read more »