Recessions can be scary things, and right now, it seems like investors have been edging in and out of a recession for decades. Of course, that’s not true. We have seen periods of high growth followed by drops in the market, providing year after year of volatility. Yet there’s one area that can see investors through any type of volatility, recession or otherwise. That’s insurance stocks.
Source: Getty Images
Why insurance
While insurance stocks might not make headlines, these are stocks that can outlast any recession. Insurance is an essential industry, a service that people don’t cancel when times get tough. Whether it’s home, auto, health, or life insurance, we all need protection. And that demand means cash will keep flowing in.
Furthermore, insurance stocks aren’t just getting premiums, but also investing. In a recession, that means interest rates shift downwards, providing the best opportunity to jump in and buy a large portfolio of bonds and other safe assets. These provide a stable financial cushion to keep cash safe.
What’s more, recessions can actually be semi-good news for insurance stocks. This is where pricing power comes in. Companies with strong balance sheets can weather the storm, while weaker players are weeded out. With conservative discipline, these larger companies merely grow larger, even providing increases to dividends that investors can look forward to during tough times.
Consider MFC
So, if you’re worried about a recession, what’s an insurance stock to consider? In this case, I would consider Manulife Financial (TSX: MFC). This insurance stock offers not just the resiliency of the insurance field, but the diversification of being a global stock. It keeps earnings steady even in slower economies from its investment in Canada, the United States, and Asia.
In fact, the investment in Asia is a growth engine that could be a huge catalyst for future growth. Insurance penetration there is still low, but demand is climbing. This can offset any slowdowns in North America, allowing for future growth in dividends and returns.
Investors witnessed this during recent earnings, with the insurance stock reporting US$1.9 billion in core earnings, up 14% year-over-year. Net income increased to US$1.7 billion, with new business value (NBV) up 18% – all driven by strong and increasing demand in Asia.
Bottom line
The topping on this delicious sundae? That dividend. Manulife stock, as well as other insurance stocks, offer up quarterly dividends. In the case of MFC, its dividend currently sits at about 5.5%. That’s a huge increase in annual income, while also providing a stable payout ratio at about 40% at writing. So not only can investors look forward to income, but income growth again and again.
If you’re worried about a recession, MFC is a great way to go to bed with nothing but happy thoughts filling your head. No stress, no fear, just income coming in again and again for decades to come. So if this sounds like something you’re interested in, be sure to meet with your financial advisor for more research on Manulife stock and other insurance stocks today.
