Sun Life Financial: A Good Stock for Most Investors

Sun Life Financial is a quality business that can deliver resilient results. It could be a good long-term investment.

Kay Ng

Kay began investing in dividend stocks around 2008 via the concept of value investing. Since then, she has expanded into growth investing, including in small caps. Her passion for investing has only grown over the years! After graduating from UBC with a BSc in Computer Science, she took university courses in financial markets, finance, and financial accounting. She has contributed her works to Motley Fool, Sure Dividend, and Seeking Alpha.

Published September 22, 2023 2:45 pm EDT

Sun Life Financial (TSX: SLF) is a blue chip stock that can work as a solid long-term investment for most investors. It is a quality business that enjoys a high S&P credit rating of A+.

In the last 10 years, the dividend stock delivered total returns of 11.7%, beating the Canadian stock market return of about 8.3%. In other words, an initial investment of $1,000 in Sun Life stock transformed into $3,035. In the past 10 years, it increased its adjusted earnings per share at a compound annual growth rate (CAGR) of close to 8.3%. Growing earnings is a key factor that drives returns on a stock.

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Dividend

What’s more to like about Sun Life stock is its dividend. Based on price appreciation alone, the stock would have only delivered a CAGR of 7.5% or turned an initial investment of $1,000 into $2,062 over the last 10 years.

At writing, it offers a decent dividend yield of almost 4.5%. The dividend is the foundation for stable returns in an investment. In addition, the life and health insurance company is a Canadian Dividend Aristocrat with a five-year dividend-growth rate of 9.6%. Here is its more recent dividend hike as a reference — Its trailing 12-month (TTM) dividend is 8.9% higher year over year.

Its TTM dividend is covered by a payout ratio of about 56% of net income. Based on estimated adjusted earnings, its payout ratio is projected to be about 44% this year. Either way, Sun Life stock pays a safe and growing dividend.

Going forward, it’s estimated to grow its earnings per share at a CAGR of about 8.6%, which can drive similar dividend growth.

The business

Sun Life has about 85 million clients internationally with approximately $1.37 trillion of assets under management. It has a well-balanced and diversified business — about 41% of which is in wealth and asset management, 32% is in group health and protection, and 27% is in individual protection.

It has four business groups to focus on value creation for clients and shareholders: asset management (about 29% of year-to-date net income), Canada (34%), the United States (23%), and Asia (14%). This appears to be a good business mix that has allowed it to deliver resilient results.

Sun Life has a medium-term target to grow its earnings per share by 8-10% per year, achieve a return on equity of north of 18%, and target a payout ratio of 40-50%.

Investor takeaway

Sun Life stock is suitable for most investors’ long-term capital. At $66.97 per share at writing, the stock trades at a reasonable valuation of about 10.6 times adjusted earnings. Analysts believe the stock trades at a discount of close to 9%. Assuming no valuation expansion, SLF stock can deliver total returns of more or less 13% per year over the next three to five years.

That said, the market is experiencing a pullback, as is Sun Life stock. So, interested investors can cautiously wait for a bigger margin of safety. If you’re really eager to grab some shares, you can watch for a potential dip to the $63-65 level over the near term.