The Canadian equity markets are upbeat this year, with the S&P/TSX Composite Index rising 15%. Falling interest rates and solid September employment numbers in the United States drove equity markets higher. Meanwhile, Sun Life Financial (TSX: SLF), an international financial services firm that provides asset management, wealth, insurance, and health solutions, has outperformed the broader equity markets with returns of over 18%. Its solid performance and improvement in broader equity markets appear to have driven its stock price higher.
Moreover, the company offers a healthy forward dividend yield of 4.1%. So, let’s assess SLF’s recent performance and growth prospects to decide on buying opportunities in the stock.
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SLF’s second-quarter performance
SLF reported a solid second-quarter performance, with its underlying net income growing by 9% to $1 billion. The strong performances from Wealth & Asset Management, Individual – Protection, and Corporate Expenses drove its financials. The underlying net income of the Wealth & Asset Management segment grew by 9% to $455 million amid higher fee income in Asset Management, Canada, and Asia. However, higher expenses in Asset Management offset some of the expansion.
Meanwhile, business expansion in Asia and Canada and a favourable mortality experience in Canada and the United States drove the Individual–Protection segment’s underlying net income, which grew 31% year-over-year to $347 million. The underlying net losses from the Corporate Expenses & Others segment fell 14% to $107 million amid lower operating expenses and financing costs.
However, the Group – Health & Protection segment witnessed a 15% decline in its underlying net income to $305 million, offsetting some of SLF’s underlying net income growth. Further, the company is restructuring its operations to improve productivity and drive earnings growth. These initiatives incurred expenses of $138 million during the quarter, offsetting some of the expansion in its underlying net income. During the quarter, the company’s underlying return on equity stood at 18.1%, an improvement from 17.7% in the previous year’s quarter.
Further, SLF’s LICAT (Life Insurance Capital Adequacy Test) ratio, which measures a life insurer’s risk, improved from 148% in the previous year’s quarter to 150%. Now, let’s look at its growth prospects.
SLF’s growth prospects
SLF ended the second quarter with AUM (asset under management) of $1,072 billion, with $845 billion in MFS and $227 billion in SLC Management. Meanwhile, MFS focuses on meeting its clients’ needs through a diverse range of investment products. Besides, SLC Management has launched SLC Global Insurance Group, a dedicated team that focuses on meeting the complex needs of insurance companies through customized financial solutions. Further, SLC Management launched the Scotia Private Real Estate Fund in partnership with Scotiabank during the second quarter. The fund will allow investors to invest in private real estate assets that offer attractive returns while hedging against inflation.
Along with these initiatives, SLF is advancing digital innovation to support its clients’ health and financial security. Further, its restructuring initiatives could deliver $200 million in annual savings by 2026. So, its growth prospects look healthy.
Dividends and valuation
SLF has been rewarding its shareholders by paying dividends since 2000. It has raised its dividends at an annualized rate of 8.6% since 2001 and currently offers a healthy forward dividend yield of 4.1%. Despite an 18% increase in its stock price this year, the company’s valuation looks reasonable, with its NTM (next 12 months) price-to-sales and price-to-earnings multiple at 1 and 11.2, respectively.
Considering all these factors, I believe SLF investors can benefit from its consistent dividend payouts and capital appreciation. So, SLF would be an excellent buy right now.
