Manulife: Stock of the Week

The dividends are great, but it’s probably not from the insurance business.

Andrew Willis 2 October, 2023 | 4:07AM
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Key Takeaways for Manulife Stock:

  • Manulife’s insurance business is maturing and the company is aiming at Asia for growth.
  • The insurer is evolving into higher-growth investment businesses and innovative behavioural reward programs.
  • Manulife’s products are complex and its portfolio is higher risk than other insurers, however, interest rates help and the company takes less risk in its fixed-income assets.

 

Andrew Willis: Did you know that the first president of Manulife (MFC) was also the first prime minister of Canada? Or that in 1901, the company amalgamated with the Temperance and General Life Assurance Company, a Canadian insurer that provided preferred rates to abstainers of alcohol?

How about the fact that Manulife didn’t go public until 1999? If you don’t own the stock, you also might not know that the company boasts a 5% twelve-month trailing dividend yield, all while trading at a P/E of only 7.

There are a lot of fun facts about Manulife’s journey to becoming an international financial powerhouse. But this growth, over such a long time span, has also led to some ‘less-fun’ facts, such as certain business segments maturing.

Manulife Focused on ‘High-Potential’ Business Segments

Insurance has become commoditized, and it’s difficult for companies to find growth in markets like the U.S. and Canada. As a result, management has been relying on growth in Asia in recent years. Equity analyst Suryansh Sharma says Asian markets and investment management are examples of “high-potential” businesses for Manulife, which the company hopes to make up 75% of earnings by 2025.

Manulife’s evolved many times throughout its long history, but this hasn’t come without risk. The company is trying innovative businesses like behavioural insurance, where policyholders are financially rewarded for healthy life choices with things like gift certificates and premium reductions. But much riskier might be the amount of non-fixed-income assets in its general account at 18%. Then again, the other 82% of the portfolio should be benefitting from today’s interest rates.

For Morningstar, I’m Andrew Willis.

 

bulls Manulife Bulls Say

  • Manulife could achieve strong growth in Asia within the next few years, driving overall top-line growth and improving geographic diversification.
  • Manulife has clearly laid out plans to reduce exposure to riskier products like long-term care insurance and variable annuities and increase exposure to high-potential businesses like behavioral insurance, asset management, and Asia.
  • The company will be a net beneficiary of rising interest rates in the long run as it can reinvest its maturing fixed-income securities at a higher yield.

bears Manulife Bears Say

  • Manulife offers complex insurance products that expose it to underwriting, investment, capital market, and interest-rate risks. Also, a higher general account allocation to non-fixed-income assets can potentially be risky during an elongated economic slowdown.
  • The market for life insurance and income-based retirement products is competitive and commoditized, and it is difficult for companies to find value-accretive growth in mature markets like the U.S. and Canada.
  • Fee pressure will damp the profitability of the firm’s asset management operations.

Editor's Note: All images are courtesy of Unsplash.com and AP Images. 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Manulife Financial Corp37.10 CAD0.24Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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