These three financial stocks—an insurance company, a bank and a financial services holding company—all offer growth and income to their investors.
Manulife Financial Corporation (TSX—MFC; NYSE—MFC)
Manulife has made progress building its digital capabilities, which has let it make more of its products available to customers by non-face-to-face means. Consequently, this multi-national financial services company continues to provide a high level of service to existing and new customers.
Manulife Financial continues to build its digital capabilities to support its customers during the COVID-19 pandemic. In Asia, about 97 per cent of its product shelf is now accessible to customers through non-face-to-face means. In Canada, the same amount of its product shelf is accessible to customers virtually, and in the US about 80 per cent is accessible in this way.
Plus, in Canada, the company has expanded its partnership with Telus’ Akira Health to provide a broader range of online medical services to its insurance clients.
Manulife will likely report lower earnings in 2020 than it did in 2019. So far, its core earnings declined by $411 million, or 15 per cent, in the first half of the year.
For the six months ended June 30, 2020, core earnings were $2.6 billion, or $1.29 a share, compared with $3.0 billion, or $1.48 a share, in the same period of 2019.
Earnings were negatively impacted by three factors. First, core investment gains were lower than last year. Second, Manulife realized lower investment income in its corporate and other segment, which included the unfavourable impact of markets on seed-money investments in segregated funds and mutual funds. And third, lower business volumes in Japan also contributed to the decline.
The latter factor caused the Asian segment’s core earnings to decline 1.1 per cent, to $980 million. Canadian core earnings declined 2.7 per cent, partly due to lower individual insurance sales. Earnings in the US segment, however, rose 11.1 per cent, to $1.0 billion, while global wealth and asset management earnings were $488 million, up 2.7 per cent.
Overall, Manulife’s core earnings per share are expected to decline 9.8 per cent in 2020 to $2.68 from $2.97 in 2019. No core investment gains and lower earnings in Canada and Asia should contribute to the decline. But EPS is expected to rebound to $3.08 in 2021, partly because COVID-19 will likely have less of an impact on such metrics as ‘annualized premium equivalent sales’ next year than it has had this year.
Meanwhile, Manulife is well positioned to navigate the threat posed by COVID-19, thanks to a strong balance sheet and healthy capital levels.
Manulife Financial is a buy for growth and income.
National Bank of Canada (TSX—NA)
Despite the fallout from COVID-19, National Bank’s third-quarter earnings were stable compared to the same quarter of 2019. In fact, income before provision for credit loss (PCLs) and income tax was up in most of the bank’s business segments. But this income was offset by an increase in PCLs caused by the economic slowdown resulting from the COVID-19 pandemic.
National Bank of Canada offers financial services to individuals, businesses, institutional clients and governments across Canada. It’s a leading bank in its core Quebec market and it holds leadership positions across the country in selected activities. Its four business segments are personal and commercial (P&C) banking, wealth management, financial markets, and US specialty finance and international (USSF&I).
For the three months ended July 31, 2020, National Bank made $602 million, or $1.66 a share, compared to $608 million, or $1.66 a share, in the same period of 2018.
Income before PCLs and income tax rose 13 per cent to $894 million, driven by revenue growth in wealth management, financial markets and USSF&I. The bank, however, recorded $143 million in PCLs, up from $86 million a year earlier.
Total revenues were $2.0 billion, up one per cent. P&C banking revenue was down four per cent, due to a smaller net interest margin.
National is well positioned to weather a second wave of COVID-19. The bank has a solid balance sheet, with high capital and liquidity levels. Its common equity tier 1 ratio is 11.4 per cent, above the regulatory minimum of 10.5 per cent.
National trades at just 10.5 times its likely fiscal 2021 (ends October 31) earnings of $6.05 a share. Its annual dividend of $2.84 a share yields 4.5 per cent.
National Bank is a buy for growth and income.
Power Corporation of Canada (TSX—POW)
For nearly two years now, Power has taken steps to simplify its structure, and surface value for investors. For instance, in August, the company’s Great-West Lifeco subsidiary agreed to sell GLC Asset Management Group Ltd. to Mackenzie Financial Corp., a subsidiary of IGM Financial, which is also a part of the Power family.
The agreement solidifies Mackenzie’s presence in the important and growing group retirement market. It also expands the relationship between Mackenzie and Great-West subsidiary Canada Life, putting both in a position to offer more diverse and unique products and solutions to their clients.
Power Corporation is an international management and holding company that focuses on financial services in North America, Europe and Asia.
For the six months ended June 30, 2020, Power made $878 million (adjusted), or $1.42 a share, compared with $610 million, or $1.36 a share, in the same period of 2019.
On a per share basis, Great-West contributed $1.23 to Power’s earnings. Adjusted earnings rose 4.4 per cent at Great-West. The increase was primarily due to growth in the company’s capital and risk solutions business and higher contributions from investments.
Aside from insurance company Great-West Lifeco, Power’s other subsidiaries reported earnings that were either flat or down from the previous period. Asset manager IGM Financial, for example, contributed $0.30 a share to Power’s adjusted earnings, down from $0.31 in the prior period.
Power’s net asset value (NAV) per share was $32.96 at June 30, up 7.0 per cent from $30.79 a share at the end of March. The shares currently trade at a 23.3-per-cent discount to their NAV.
Holding companies typically trade at a discount to their NAV. But Power has the opportunity to narrow that discount by surfacing value through actions such as the sale of GLC Asset Management to Mackenzie. In the meantime, shareholders get to collect a high dividend that yields 7.1 per cent.
Power Corp. is a buy for growth and income.
This is an edited version of an article that was originally published for subscribers in the November 2020, Second Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
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The MoneyLetter •1/10/21 •