Investing in insurance stocks is a great way to diversify your equity portfolio. These businesses have the potential to generate solid long-term returns across market cycles, as they are recession resistant by nature.
Due to consistent cash flows and earnings, most insurance companies also pay shareholders tasty dividends, making them attractive to the income-seeking investor.
With these factors in mind, here are three top Canadian insurance stocks you can buy in 2023 and hold forever.
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Great-West Lifeco stock
Valued at a market cap of $36 billion, Great-West Lifeco (TSX: GWO) has returned 110% to shareholders in the past decade. Comparatively, the TSX index has gained 134% since July 2013 after adjusting for dividends.
Priced at 10.5 times forward earnings, GWO stock is quite cheap, given its dividend yield stands at 5.5%. Moreover, analysts forecast Great-West to increase adjusted earnings by 5.5% annually in the next five years.
In the first quarter (Q1) of 2023, Great-West reported adjusted earnings of $808 million compared to $712 million in the year-ago period. The company attributed higher base earnings to Prudential-related base earnings of $69 million, favourable group insurance for long-term disability, and realized synergies from the MassMutual acquisition, which was offset by lower fee income in the U.S.
Sun Life Financial stock
Valued at a market cap of $40 billion, Sun Life Financial (TSX: SLF) pays shareholders an annual dividend of $3 per share, translating to a yield of 4.4%. Sun Life has a diversified business and generates 44% of its income from wealth & asset management, 36% from group insurance, and the rest from traditional insurance.
In Q1 of 2023, Sun Life reported underlying net income of $895 million, an increase of 24% year over year. The company increased net income by 7% annually between 2017 and 2022. Its dividend per share also rose from $1.75 per share in 2017 to $2.76 per share in 2022, an increase of 10% annually.
With $1.33 trillion in assets under management, Sun Life stock has more than tripled in the last 10 years, easily outpacing the broader indices. Priced at 11 times forward earnings, SLF stock also trades at a discount of 5% to consensus price target estimates.
Manulife stock
The final TSX insurance stock on my list is Manulife (TSX: MFC). It is a financial services giant valued at $46 billion by market cap. Its net income has increased from $5.9 billion in 2020 to $7.3 billion in 2022. So, MFC stock is priced at less than seven times trailing earnings.
With $1.3 trillion in assets under management, Manulife has successfully gained traction in Asia, which is one of the fastest-growing regions in the world. In fact, Manulife is among the largest pan-Asian insurers globally.
The company ended 2022 with a Life Insurance Capital Adequacy ratio of 131%, $20 billion above its initial target, providing it with sufficient liquidity. In an inflationary environment, Manulife has reduced its expense efficiency ratio to 50.9% in 2022 from 55.4% in 2017.
Despite an uncertain macro economy, Manulife’s wealth and asset management experienced net inflows in 10 of the last 10 quarters.
Priced at 7.7 times forward earnings, Manulife stock is very cheap. It’s trading at a discount of 16% to consensus price target estimates.
