A blue chip global financial stock for growth and income

Manulife Financial has thrown cold water on the rumours that it was considering selling its US operations. It does have some underperforming assets in the US, but it would like to retain its better-performing assets there. This blue chip stock’s outlook is still positive and it’s a ‘buy’ for growth and income.

Global_Financial_StockManulife Financial (TSX—MFC; NYSE—MFC) is a Canadian global financial stock headquartered in Toronto. Together with its subsidiaries it provides individual life insurance and individual and group long-term care insurance services. Its business segments are its Asia Division, Canadian Division and US Division.

The shares of Manulife got a lift in mid-July when a report surfaced in the The Wall Street Journal that said the company was considering divesting its US operations. The shares moved steadily higher after this report, climbing from about the $25 level to an eight-year high just over $26 on August 8.

But the shares have since pulled back to the $25 level after Manulife’s management appeared to throw cold water on the idea of a spinoff when the company released its second-quarter results on August 9.

Trouble is, while Manulife would like to sell some of its underperforming assets in the US, it would like to retain its better-performing assets there. This makes a sale more complicated because the stronger-performing assets would make the under-performing assets more attractive to a potential buyer.

Q2 results beat estimate but still disappoint

Manulife’s second-quarter financial results, while beating the consensus estimate, were not strong enough to compensate for the disappointment over a potential spinoff. The company reported that its core earnings per share, or EPS, were $0.57, $0.03 above the consensus estimate. This was also a strong advance over the $0.40 a share it earned in last year’s second quarter.

The second-quarter tally follows a strong first quarter. Altogether, this year’s financial results are impressive. For the six months ended June 30, 2017, Manulife made $2.3 billion in core earnings, or $1.11 a share, compared with $1.7 billion, or $0.84 a share, in the same period of 2016.

We anticipate that Manulife will continue to do well under its incoming chief executive officer, Roy Gori. Mr. Gori wants to improve the company’s returns by emphasizing higher-return businesses while doing something about its lower-return legacy businesses.

The financial stock trades just around 10.9 times the $2.25 a share that Manulife will likely earn in 2017. That’s a discount to its peer-group’s average of about 11.8 times earnings.

What’s more, the annual dividend of $0.82 a share, which was increased 10.8 per cent in March, yields 3.3 per cent. Manulife Financial is a blue chip stock to buy for growth and income.

This is an edited version of an article that was originally published for subscribers in the September 15, 2017, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
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