This Passive-Income All-Star Just Increased its Dividend by 9.6% 

Shout out to dividend seekers. This stock increased its dividend by 9.6% and has the potential to keep growing the payout.

| More on:
Growing plant shoots on coins

Image source: Getty Images

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…

YearMFC Dividend per ShareDividend GrowthMFC Stock PriceNew DRIP Shares AddedTotal Share CountTotal Dividend Amount
2010$0.520 $18.34545545$283.53
How Manulife will compound your dividend income.

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Dividend Stocks

Got $1,000? Here Are My 3 Top Stocks to Buy Right Now

These three TSX stocks would be an valuable addition to your portfolio due to their impressive underlying business, healthy growth…

Read more »

edit Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Dividend Stocks

How Much Money Do You Need To Retire Worry-Free? 

Are you unsure how much money you should save to retire worry-free? Here is a guide to help you plan…

Read more »

analyze data
Dividend Stocks

Is Fiera Capital Stock a Buy for Its 10% Dividend Yield?

Fiera Capital stock is down 44% from all-time highs increasing its dividend yield to 10.2%. Is the dividend stock a…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

TFSA Investors: Turn $7,000 Into $20,000 by 2030

Investors can consider holding undervalued growth stocks such as Pet Valu in their TFSA right now.

Read more »

Supermarket aisle with empty green shopping cart
Dividend Stocks

Is Now the Right Time to Buy Dollarama Stock?

Dollarama stock trades at a fair valuation despite its market-thumping gains in the past decade. Is the TSX stock still…

Read more »

protect, safe, trust
Dividend Stocks

How to Earn Safe Dividends With Just $10,000

Earn reliable income with relatively safe stocks like Fortis.

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

2 Dividend Stocks to Beat Inflation

These two TSX dividend stocks can be excellent holdings to beat inflation, even as inflation cools down.

Read more »

dividends grow over time
Dividend Stocks

TFSA: Invest $20,000 and Get $860/Year of Predictable Passive Income

Looking for safe passive income that will grow and build wealth inside your TFSA. Check out this four-stock portfolio of…

Read more »