At a time when many companies slashed dividends and several Dividend Aristocrats slowed their dividend growth, this passive income all-star increased its dividend by 9.6%. The company I am talking about is Manulife Financial (TSX:MFC). It reported strong 2023 earnings and passed on the benefit to shareholders by increasing its quarterly dividend to $0.40 from $0.365.
Can this stock sustain its dividend?
When a company grows its dividend aggressively, the first question that comes to your mind is, can it sustain this dividend? You can gauge its dividend stability by looking at its free cash flow and the percentage of cash flow it is using to pay dividends.
Manulife Financial has three core segments — financial advice, insurance, and wealth and asset management solutions. It provides these services in Canada, America, and Asia. The weakness in one market is offset by strength in others. It is among the market leaders in these segments. It has a stable free cash flow and a dividend-payout ratio of 56%. With a Moody’s rating of A1, the insurer has easy access to credit.
The insurer has increased its dividend at a compound annual growth rate (CAGR) of 11% in the last 11 years. Manulife halved its dividend one time in 2009 during the Global Financial Crisis. That was the time when many big banks operating in America declared bankruptcy. If Manulife averted that crisis with a dividend cut, it shows how resilient the company is.
How to earn passive income from this dividend stock
If you invested $10,000 in Manulife in January 2010, you could have purchased 545 shares. The insurer offers a dividend-reinvestment plan (DRIP) that helps you compound your dividend. Instead of giving a payout, the company uses the dividend money to add DRIP shares worth the dividend amount without any brokerage cost. Your share count increases, and so does your total dividend amount.
If you invested $10,000 in this dividend stock in 2010…
| Year | MFC Dividend per Share | Dividend Growth | MFC Stock Price | New DRIP Shares Added | Total Share Count | Total Dividend Amount |
| 2024 | $1.600 | 9.6% | $22.11 | 64.18 | 1,036.04 | $1,657.66 |
| 2023 | $1.460 | 10.6% | $19.8 | 60.74 | 971.86 | $1,418.92 |
| 2022 | $1.320 | 12.8% | $20.82 | 48.48 | 911.12 | $1,202.68 |
| 2021 | $1.170 | 4.5% | $18.08 | 50.32 | 862.65 | $1,009.30 |
| 2020 | $1.120 | 12.0% | $19.47 | 39.68 | 812.32 | $909.80 |
| 2019 | $1.000 | 9.9% | $16.08 | 41.38 | 772.64 | $772.64 |
| 2018 | $0.910 | 11.0% | $21.23 | 27.19 | 731.26 | $665.44 |
| 2017 | $0.820 | 10.8% | $19.16 | 26.18 | 704.06 | $577.33 |
| 2016 | $0.740 | 11.3% | $13.86 | 31.04 | 677.88 | $501.63 |
| 2015 | $0.665 | 16.7% | $16.08 | 22.14 | 646.85 | $430.15 |
| 2014 | $0.570 | 9.6% | $18.43 | 17.14 | 624.70 | $356.08 |
| 2013 | $0.520 | 0.0% | $14.43 | 21.13 | 607.56 | $315.93 |
| 2012 | $0.520 | 0.0% | $11.72 | 24.91 | 586.43 | $304.94 |
| 2011 | $0.520 | 0.0% | $17.44 | 16.26 | 561.51 | $291.99 |
| 2010 | $0.520 | $18.34 | 545 | 545 | $283.53 |
The company reinvests the dividend amount on the payout date, meaning reinvestment happens four times in a year. But for ease of calculation, I assumed the annual dividend would be reinvested on January 1. The actual figure might differ. The objective of the table is to give you a rough idea about the workings of passive-income stocks.
Returning to the calculation, your 545 shares would have given you an annual dividend of $283. If you reinvested that amount on January 1, 2011, you would get 16.26 DRIP shares. With every new dividend, the share count would grow and reach 972 in 2023. As Manulife also increased its dividend per share, 972 shares would give a total dividend of $1,419. Moreover, your 972 shares are worth $31,755, as the share traded at $32.67 at the time of the writing.
If it maintains the $0.40 quarterly dividend per share, you could get a $1,657 dividend income in 2024 from 1,036 shares after adding DRIP shares.
Investor takeaway
Manulife is among the world’s top 10 life insurance companies and has been doing business for over 125 years. With a 4.9% dividend yield, the stock could be a good addition to your passive income portfolio. It can give you diversification beyond the energy, utility, and banking sectors and grow your passive income faster than inflation.
