Manulife (TSX:MFC) stock has been criticized for underperforming its peer, Sun Life Financial. The graph below illustrates their 10-year total returns, along with a comparison with the Canadian stock market. Specifically, over the last decade, Manulife stock’s total returns were about 7.3% per year, the Canadian stock market’s total returns were about 8% per year, and Sun Life stock’s were 10.5% per year.
MFC, SLF, and XIU Total Return Level data by YCharts
Manulife stock continues to trade at a lower price-to-earnings ratio (P/E) than Sun Life. Nonetheless, the life and health insurance stock has outperformed Sun Life over the last 12 months. Seeing that its valuation remains low, it could potentially outperform over the next few years as well.
Here are their 12-month total returns, which significantly outperformed the market.
MFC Total Return Level data by YCharts
Both stocks outperformed the Canadian stock market return over the last three years as well.
MFC, SLF, and XIU Total Return Level data by YCharts
Manulife has substantial exposure to Asia. For example, in the third quarter (Q3), 30% of its core earnings came from Asia, 25% came from the United States, 23% came from Canada, and 21% came from its global wealth asset management operations.
Its portfolio consists of about 81% in fixed-income assets. As of the end of the third quarter, its asset mix included 31% in corporate bonds, 18% in government bonds, 13% in mortgages (of which 14% is government-insured mortgages), and 10% in private placement debt. So, changes in interest rates would impact its returns. And 96% of its debt securities and private placement debt are investment grade.
Manulife’s recent results
So far, Manulife has reported three quarters of results for this year. In November, the company highlighted that in Q3, “Our strong operating and new businesses results this quarter were supported by growth in Asia with a 33% increase in core earnings… We also delivered resilient results in global wealth asset management… We are in a position of strength to weather macroeconomic uncertainties. We continued to deploy capital through share buybacks to further enhance shareholder returns, with nearly $1.3 billion of our common shares repurchased since the start of the year.”
Year to date, it increased its core earnings by 12% to $4.9 billion. Helped by share repurchases, on a per-share basis, it increased its core earnings by 20%, resulting in a sustainable payout ratio of approximately 43%. Furthermore, its core return on equity improved to 15.7% versus 13.9% a year ago. It’s also good to see that its book value per share increased by 3% year over year to $22.42.
Investor takeaway
Manulife stock could deliver higher returns over the next few years from a relatively low P/E ratio, stable earnings growth, and a big dividend yield.
At $27 per share at writing, the dividend stock trades at about eight times adjusted earnings, while it’s expected to grow its adjusted earnings per share by about 7–8% per year over the next couple of years. Analysts believe the stock is fairly valued.
Importantly, it offers a sustainable dividend yielding of 5.4%, which is more appetizing than Sun Life’s yield of 4.5% and could appeal to income-hungry investors. Notably, Manulife’s 10-year dividend growth rate is 9.8%, while its last dividend hike was 10.6% in February.
