As far as all-around top Canadian stock ideas are concerned, Manulife (TSX: MFC) continues to be one of the table-pounding stocks I’m not going to stop pounding the table on, until something changes.
This leading Canadian insurer is also one of the better-performing stocks of late, with its stock chart above showing just what a long-term investment in this stock would have generated over the past five years.
That said, on a go-forward basis, I think there’s still good reason to believe more upside could be ahead over the coming five years. Here’s why.
Source: Getty Images
A valuation that makes sense
I’d argue that in this environment, valuations matter more than they have in a long time. We’re transitioning (it seems) from a growth-focused market to one where investors are seeking growth, but at reasonable valuations. In this regard, I do think Manulife stands out thanks to its robust balance sheet and long-term growth prospects.
The company’s current multiple of around 16 times earnings supplements the “GARP” argument supporting a company that continues to see robust bottom line growth. With earnings growing at a rate of around 5% per year and its contractual service margin (CSM) increasing 200 basis points to 32%, there’s a lot to like about the top and bottom line upside of this name.
Adding to this positive fundamental narrative is a robust dividend yield of 3.9% and a solid long-term track record of dividend increases over time. So long as the company can continue to see strong growth in its core insurance business, and amplify this growth via its growing wealth management segment, there’s a lot of upside potential ahead investors can look forward to.
Strong capital management and positive shareholder return profile
Another key factor driving investor interest in Manulife (and what should propel this stock higher over the long term) is the company’s strong commitment to returning capital to shareholders. This past year, the insurance giant returned more than $6 billion in dividends and share buybacks to investors, which is a decent sum when considering this company is valued at around $55 billion.
That sort of capital return should keep investors coming back for more. Personally, this is a name I think the analysts (who have a consensus buy rating on the stock) are right about.
Those with a long-term investing time horizon can certainly do a lot worse than putting some capital to work in this name. I’m expecting slow and steady returns over the long term with Manulife, and that’s good enough for me.
