Investing in blue-chip stocks is among the safest ways to gain exposure to equity markets. Typically, blue-chip companies enjoy a wide economic moat, predictable cash flows, and sound fundamentals, allowing them to thrive across business cycles. Moreover, due to consistent cash flows, these companies generally pay shareholders a tasty dividend yield.
Two such financial services giants trading on the TSX include Manulife (TSX: MFC) and Sun Life Financial (TSX: SLF). Let’s see which of the two TSX stocks is a better buy right now.
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The bull case for Manulife stock
Valued at a market cap of $46 billion, Manulife is a financial services giant. Its business segments include Wealth & Asset Management, Insurance & Annuity, Corporate, and Others. Manulife has increased its net income from $5.9 billion in 2020 to $7.3 billion, which indicates the stock is trading at 6.5 times trailing earnings, which is very cheap.
The company manages $1.3 trillion in total assets across its businesses, allowing it to more than triple its net income in the last five years. Manulife is now among the top three pan-Asian insurers in the world’s largest continent, with a rapidly expanding middle class. For instance, Asia’s middle class is forecast to touch 3.5 billion by 2030, an increase of 75%.
Its global wealth and asset management has achieved net inflows in 10 of the last 12 quarters, which is exceptional, given the challenging macro environment.
Manulife ended 2022 with a LICAT (Life Insurance Capital Adequacy) ratio of 131%, which is more than $20 billion above initial targets. It continues to focus on improving the customer experience, which results in higher engagement rates. Its net promoter score has increased by 19 points in the past five years, allowing Manulife to expand its customer base from 26 million in 2017 to 34 million in 2022.
Despite elevated inflation levels, Manulife has focused on cost efficiencies. Its expense efficiency ratio has improved from 55.4% in 2017 to 50.9% in 2022, with a commitment to lower this ratio to less than 50%. Manulife believes its digital transformation efforts, standardization of processes, and cost optimization will drive profit margins higher.
Manulife pays shareholders an annual dividend of $1.46 per share, indicating a yield of 5.8%. These payouts have increased by 7.2% annually in the last 20 years.
Analysts remain bullish and expect Manulife stock to surge over 15% in the next 12 months.
The bull case for Sun Life stock
Another TSX heavyweight, Sun Life Financial, is valued at a market cap of $40 billion. The company ended 2022 with a net income of $3.6 billion, which has grown by 8% annually in the last five years. An expanding bottom line has enabled Sun Life to increase dividends by 10% annually since 2017.
Sun Life currently pays shareholders an annual dividend of $3 per share, indicating a yield of 4.5%. With a payout ratio of less than 50%, Sun Life has enough room to grow its dividends, reinvest in growth, and enter other higher-growth markets.
Valued at 10 times forward earnings, SLF stock is priced at a discount of 10% to consensus price target estimates.
The Foolish takeaway
I believe Manulife’s lower valuation and higher dividend yield coupled with its expansion efforts in Asia make it a better bet compared to Sun Life Financial.
