Manulife Financial Corp.’s share price has sailed to record highs this year, but even as its bargain days recede the stock still has something going for it: an impossible-to-ignore dividend.
The life insurer is rewarding shareholders with larger-than-expected distribution increases, offering long-term investors a reason to stay put and giving new investors a compelling case for embracing a stock that is on a winning steak.
The bullish case was underscored last week, when Manulife boosted its quarterly dividend by 10.2 per cent, to 48.5 cents a share or $1.94 on an annualized basis.
The increase was larger than some analysts had been expecting.
The insurer also announced plans to buy back up to 42 million shares, or 2.5 per cent of its total count, after a 3-per-cent buyback last year – wielding another tool for returning capital to shareholders.
The pros have taken notice.
National Bank Financial this week added Manulife to its Dividend All-Stars, an elite group of Canadian stocks that strives to deliver an outsized – but sustainable – yield and a market-beating total return.
In a note, Gabriel Dechaine, an analyst at National Bank who covers the stock, rattled off a list of traits that make Manulife worthy of inclusion in the 23-stock group.
Among them: the insurer’s long-term track record for dividend hikes, a strong financial position with capital levels well above regulatory requirements, an attractive wealth management arm and geographic diversity that includes a substantial Asian-based business.
Seven stocks offering buybacks and strong dividends
Manulife’s new status as dividend darling marks the latest step in an impressive turnaround for the former laggard among Canadian blue-chip financials.
After it cut its dividend by 50 per cent in 2009, when the financial crisis and stock market crash upended its business model, Manulife lost much of its allure for investors looking for strong performance and a bullet-proof dividend.
It took until 2024 for the share price to climb above its high point in 2007 – a 17-year recovery during which the global financial giant restructured some of its operations to focus on more profitable areas and dampen its sensitivity to stock market gyrations.
Anyone who missed out on this rebound can point to a couple of reasons for staying on the sidelines today.
For one thing, the stock isn’t cheap. It trades at nearly 1.9-times book value, compared with a historical average of about 1.2, according to Darko Mihelic, an analyst at RBC Dominion Securities.
The valuation is lower than rival Sun Life Financial Inc. and some of the big banks. But the stock no longer stands out as a deal.
Another reason for caution: Manulife’s fourth-quarter results, though robust, highlighted one area of concern.
In its U.S. operations – a key area for growth – profits declined 22 per cent from the same period last year, as life insurance claims increased during the quarter.
During a call with analysts, executives pushed back on questions about whether this profit dip was part of a longer-term trend. They argued that the high end of the U.S. market can be volatile over short periods of time – but still attractive.
“While there is that variability associated with operating at the high end of the market, the value metrics are very strong. You saw that last year, and we’re very confident about our ability to continue to grow that business,” Brooks Tingle, chief executive officer at John Hancock, the U.S. segment, said during the call.
Perhaps some investors aren’t buying these assurances, given that the share price is down 3.5 per cent – as of Thursday’s close – since Manulife reported its quarterly financial results.
Performance jitters and valuation concerns aside, though, Manulife’s dividend is reason enough to consider adding the stock to your very own all-star list.
The current yield, including the just-announced distribution hike, is 3.9 per cent.
That’s slightly ahead of the yield on the S&P/TSX Canadian Dividend Aristocrats Index, which yielded 3.6 per cent at the end of January. And it is higher than five of the Big Six banks (Bank of Nova Scotia being the exception).
Manulife also shines because of its relatively low payout ratio. It distributes just 43 per cent of its profits as dividends, according to National Bank, which gives it room to increase the distribution as profits rise.
As the insurer demonstrated last week, these increases can be substantial – and they’re adding up. Over the past decade, the quarterly distribution has risen by a total of 162 per cent.
Manulife is no longer a turnaround story. But as a dividend growth story, it’s still going strong.