Sun Life Financial (TSX: SLF) is up 25% in 2024 and trades near its recent record high. Investors who missed the big rally are wondering if SLF stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends.
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Sun Life stock price
Sun Life trades for close to $85 per share at the time of writing. The stock recently hit $88 and is up more than $20 per share since early August.
Record stock prices and elevated interest rates have helped fuel gains for the insurance, benefits, and wealth management segments of the business.
Sun Life reported good third-quarter (Q3) 2024 results. Underlying net income increased 9% compared to Q3 2023, and return on equity (ROE) came in at a solid 17.9%. Wealth and asset management underlying net income rose 4%, while group health and protection underlying net income jumped 21%. Individual protection underlying net income was up 3% compared to the same period last year.
Assets under management jumped to $1.52 billion from $1.34 billion in Q3 2023.
Sun Life operates businesses in Canada, the United States, Europe, and Asia. Canadian operations saw underlying net income rise 11% to $375 million. South of the border, the U.S. health and benefits business saw an underlying net income rise of 15% to US$161 million. In Asia, underlying net income increased 2% to $170 million.
Opportunities
Sun Life has been building its presence in Asia for decades. The company now has established operations in Mainland China and Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore, and Vietnam.
As the middle class expands in these countries, there is huge growth potential for insurance and wealth management products.
Insurance companies stand to benefit significantly from the use of artificial intelligence (AI) technologies. The programs can not only streamline policy processes but also provide effective customer service operations. AI will also be able to analyze the vast data sets the insurers possess to customize offerings for individual clients to boost product sales or identify potential risks.
Impact of interest rates and stock markets
Insurance companies are required to set aside significant funds to cover potential claims. The steep rise in interest rates in 2022 and 2023 enabled Sun Life and its peers to generate much better returns on these funds.
Interest rates started to decline in Canada and the United States in recent months. As rates fall, gains from fixed-income holdings will likely decline.
Stock markets are at record levels. This benefits the wealth management operations at Sun Life. Uncertainty about the economic outlook in 2025 could lead to a meaningful pullback at some point in the next year, especially given the lofty valuations.
Should you buy Sun Life stock now?
Sun Life should be a solid pick for a buy-and-hold dividend portfolio. At the current share price, investors can get a decent dividend yield near 4%.
That being said, the stock has had a big run in recent months, and the market might be a bit ahead of itself given some of the risks that could be on the horizon with new U.S. trade policy on the way.
Existing owners of the stock should probably stay invested or even look to book some profits. New investors might want to wait for a pullback to start a position in the stock.
