Investing in financial services companies allows investors to gain from strong total returns over time. Companies in the finance sector can vary based on business model. But insurance-focused Manulife Financial (TSX:MFC) remains a top pick of mine in this sector for its total-return potential. This is a dividend stock as much as it is a value or capital-appreciation play. So, long-term investors really get the best of all worlds owning this company.
Investors in Manulife have done very well over the past five years, seeing their investment grow roughly 60% alongside a very healthy dividend that’s averaged well above 5%. Currently, the company’s dividend yield sits a bit above the 5% level despite all this capital appreciation.
Let’s dive into why Manulife still looks like a solid bet right now.
Yields are rising, but Manulife stock continues to perform well
One of the key detrimental factors many investors focus on when it comes to higher-yielding stocks like Manulife is that there’s now an alternative for investor capital. Given that longer-term bonds in the U.S. are paying out close to 5% (and they’re risk-free, to a certain degree), Manulife isn’t the only steady 5%-yielding asset out there anymore.
However, the company’s business model is extremely robust and has also provided capital-appreciation bonds due to its valuation. At current levels, Manulife stock still seems cheap, valued at only 12 times earnings. Thus, the argument can be made that more upside potential could be on the medium-term horizon.
Focusing on wealth management and insurance products to both individuals and groups in North America and Asia, Manulife’s core business has seen steady growth. Driven primarily from population growth in Asia and the company’s strong brand, this growth can continue for some time to come.
Financials look solid
One of the key drivers of Manulife’s recent outperformance in terms of its stock price boils down to its financial performance. The company recently reported full-year revenue of $27.2 billion, a remarkable 61% rise over 2022. Net income also more than doubled from $2.2 billion to $4.8 billion over the same period. Those are numbers more indicative of a growth stock than an insurance company.
Paradoxically, higher bond yields have helped the company, which invests primarily in long-duration assets. As Manulife rolls more of its portfolio into these assets, the insurance giant can generate higher risk-free returns, benefiting investors. So, the risk of higher interest rates is sort of double-edged in the sense that there’s some benefit there for investors.
Why is Manulife stock worth buying?
In my view, Manulife is one of those value/income/growth plays that are hard to find in the market. This is a defensive stock as well, providing stability during periods of turmoil. As long as there’s no black swan event, this is a company that should continue to provide strong results moving forward. And while past performance is no indication of the future, this is a company that’s clearly moving in the right direction.
