Manulife Financial Stock: An Unmissable 6% Return (NYSE: MFC)

DeanDrobot/iStock via Getty Images

Canadian companies continue to be an excellent choice for US investors looking to diversify their holdings internationally without venturing too far. This includes stocks I’ve written about previously, such as telecommunications and banking giants BCE Inc. (BCE) and Bank of Montreal (BMO).

This brings me to Manulife Financial Corp. (New York Stock Exchange: MFC) which is currently yielding an even higher yield than the two aforementioned stocks. In this article, I highlight what makes MFC a solid value buy for income and growth, so let’s get started.

Why MFC?

Manulife Financial is one of the Big Three life insurance companies in Canada, alongside counterparts Sun Life and Great West Life. Beyond life insurance, MFC also offers wealth management products and services to individual and group clients in Canada, the United States and Asia.

MFC has a long operating history of 130 years and currently has C$856 billion in global wealth and assets under management, making it one of the top 10 asset managers in Canada . MFC’s track record as a reliable asset manager gives it a competitive moat, as this translates into stable client relationships, as noted by Morningstar in its recent analyst report:

Overall, we believe that MFC’s asset management business has a narrow moat due to transfer costs and intangibles. Although switching costs are not explicitly high, inertia and the uncertainty of getting better results elsewhere tend to keep investors in the same fund for some time. Asset managers generally gain moats in intangible assets by having strong and respected groups as well as a track record of sustainable and successful investment performance.

Fears of a global recession sent MFC’s stock price plummeting from a 52-week high of $22 reached as recently as February to just $17.52 at the ‘actual hour. As shown below, MFC is now even below the early 2020 trading range of $20-21.

mfc shares

MFC share price (Looking for Alpha)

You might think that MFC’s business is doing poorly based on its stock performance over the past few months, but that doesn’t seem to be the case. This is reflected in Global Wealth and Asset Management’s encouraging net asset inflows of C$6.9 billion in the first quarter, far exceeding the C$1.4 billion recorded by MFC in the first quarter. the period of the previous year.

However, net book value is down 14% year-on-year as tight COVID-related restrictions in Asia reduced NBV, partially offset by strong double-digit growth in the US and Canada. Nevertheless, MFC still maintains a strong return on core equity of 11.8% and a LICAT (Life Insurance Capital Adequacy Test) ratio of 140%, well above the regulatory limit of 90% set by the OFSI of Canada.

Looking ahead, I expect MFC’s Asian business to recover in the second half as many of the lockdowns in China eased. MFC showed strong momentum in Hong Kong, where it gained market share, and increased its ranking by one place as the fifth largest insurer there.

Additionally, it looks like MFC is increasing its momentum in China, as a recent report outlines MFC’s decision to take full control of its Chinese joint venture, signaling a potential total addressable market of $7.8 billion, as shown below. – below:

Chinese regulators have agreed to Manulife Financial’s request for full control of its Chinese joint venture, Reuters reported on Wednesday, citing two people with knowledge of the matter, as the world’s second-largest economy continues to open up its financial sector to allow foreign companies to fully own their operations there.

Canada’s largest life insurer is seeking to increase its stake in its joint venture to 100% from 49% currently, Reuters said, a move that would increase its presence in the growing Chinese fund market. Assets under management in China’s fund industry are expected to reach $7.8 billion by 2025 from $3.8 billion in 2021, according to projects from consultancy McKinsey.

Acceptance of the application by the China Securities Regulatory Commission brings Manulife closer to obtaining full control of the joint venture. Although the timing is not yet known, an approval could come soon, one of the sources told Reuters.

In the meantime, I see the recent weakness in MFC shares as a good opportunity for long-term income investors. At the current price of $17.52, MFC offers an attractive forward dividend yield of 5.9%. This comes with a low payout ratio of 37%, a 5-year dividend CAGR of 11.2% and 6 consecutive years of growth.

He also carries a mixed PE of just 6.9, well below his normal PE of 11.0 over the past decade. Analysts expect low-to-mid single-digit EPS growth in the second half of this year, with a sharp rise to low-to-mid-single-digit EPS growth next year. Morningstar and sell-side analysts both have a price target of $22, implying a potential total return of 31% over one year, including dividends.

mfc shares

MFC Assessment (FAST Charts)

Key takeaway for investors

Manulife Financial’s long-term outlook remains strong, with Asia operations expected to recover in the second half of the year and upside potential from full control of its Chinese joint venture. Meanwhile, MFC is reporting strong net asset inflows and has shown strength in its core businesses in the US and Canada. Income investors looking for high-yielding stocks that trade at a discount might consider buying MFC stocks here.

Comments are closed.