Manulife Financial is doing a lot of things right. That’s largely why we continue to recommend it as a buy for long-term gains as well as attractive and growing dividends.
One subscriber cares little for financial stock Manulife Financial Corp. He writes: “I wonder why you always recommend their stock that does not perform very well?” The shares have risen by 124 per cent from a low of $10.66 a share almost 10 years ago. Manulife has also paid profitable and growing dividends. Its current yearly dividend of $1.32 a share provides a very attractive yield of 5.3 per cent. OSFI (the Office of the Superintendent of Financial Institutions) is letting insurers and banks resume raising their dividends.
Manulife earnings continue to grow
We continue to rate Manulife a buy for several reasons. First, it has earned more over the years. In 2021, it achieved core earnings of $6.536 billion. Its core earnings per share jumped by 18.2 per cent, to $3.25 a share. In 2022, its core earnings per share are expected to advance by 8.9 per cent, to $3.54 a share.
Second, Manulife has used its growing earnings to reward its shareholders. It raises its dividends and the company also buys back its own shares. This can reduce the number of average diluted shares outstanding. Spreading the earnings over fewer shares automatically increases its earnings per share, of course. All else being equal, higher earnings per share can justify a higher share price.
Manulife is well diversified
Third, Manulife is diversified around the world. Its biggest market is Asia, where last year’s core earnings hit $2.176 billion. There is enormous growth potential in Asia.
Manulife’s geographical diversification also reduces its exposure to any one country. Similarly, its diversification across many financial services reduces its risk.
Benjamin Graham, the father of fundamental security analysis, once said that in the short run, the stock market is a ‘voting machine’. But in the long run, it’s a ‘weighing machine’. Trying to accurately predict the very short-term direction of a stock’s price is impossible. But in the long run, the share price of a company doing a lot of the right things is quite likely to go up.
A weighing machine beats a voting machine
We think that Manulife is doing a lot of things right. That’s why we continue to rate it a buy for long-term share price gains as well as very attractive and growing dividends. Rising interest rates are also positive for insurers and banks.
This is an edited version of an article that was originally published for subscribers in the March 11, 2022, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
The Investment Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846