Sun Life Financial (TSX:SLF) is down more than 10% since the end of June. Investors who missed the big rally in the stock over the past year are wondering if SLF is now oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and total returns.
Sun Life share price
Sun Life trades near $80 per share at the time of writing compared to $90 at the end of Q2. The stock was as low as $78 in recent days after investors reacted negatively to the Q2 2025 earnings results and the company’s outlook for the rest of the year.
Sun Life reduced its guidance for its dental insurance business in the United States due to uncertainty around future Medicaid funding for dental coverage. This led to an 8% plunge in the share price.
The overall Q2 numbers were actually stable compared to the same period last year. Underlying net income came in at $1.02 billion, up 2% year-over-year. Underlying return on equity (ROE) remained solid at 17.6%.
Asset management and wealth operations delivered similar results compared to Q2 2024, with underlying net income of $455 million. Total assets under management (AUM) increased from $1.47 trillion to $1.54 billion.
On the insurance side, group health and protection, which provides insurance products and services to corporate and government clients with employee benefit programs, saw underlying net income increase by 7%. Individual protection underlying net income, however, slipped 10%.
By region, the Asia operations delivered most of the good news with record underlying net income in business units rising 15% to $206 million. In Canada, underlying net income slipped 6% to $379 million. South of the border, U.S. underlying net income fell 4% to US$143 million.
Market outlook
Sun Life and other wealth and insurance companies have benefited from the jump in interest rates in Canada and the United States that occurred in 2022 and 2023. Insurance companies have to keep large amounts of money liquid to cover potential claims. Rising government interest rates raised the rates of return the insurance companies can generate on these funds when invested in cashable fixed-income investments.
The central banks started to reduce interest rates in the second half of 2024. Additional rate cuts have been on hold, but analysts expect a weakening economy to force the central banks to reduce rates again before the end of the year. This would put pressure on the returns insurance companies can generate on cash positions.
On the wealth management side, soaring stock market valuations have helped drive higher profits and rising AUM for insurance companies that manage funds for institutional, corporate, and individual clients. The rally could continue, but a pullback is likely as valuations get stretched relative to historical norms and economic uncertainty builds as tariffs start to lead to higher consumer prices.
As such, profit growth at Sun Life and its peers might be more challenging over the medium term.
Opportunity
Asia remains a bright spot for the company as middle class wealth expands in the region across its massive population base. At the same time, Sun Life and the broader insurance industry stand to benefit significantly by using AI programs to automate processes to improve efficiency, reduce costs, and identify potential for new product sales based on the analysis of client data.
Time to buy?
Additional downside could be on the way, so I wouldn’t back up the truck just yet. A better entry point might emerge in the coming months.
That being said, Sun Life deserves to be on your radar for a buy-and-hold portfolio. The current dividend yield of 4.4% pays existing investors well to ride out some turbulence. Further weakness in the share price would be an opportunity to add to the position.
