Get 4.0% and 5.7% yield from Sun Life Financial Inc. and Manulife Financial Corp. respectively
Our two top Canadian insurance recommendations have been impacted by COVID-19 but should rebound quickly once the coronavirus outbreak eases.
That rebound should lift the value of their client portfolios, associated wealth management fees and share prices.
SUN LIFE FINANCIAL, (Toronto symbol SLF; www.sunlife.ca) sells life coverage, savings, retirement and pension products. The company operates in Canada, the U.S., Asia and the U.K. It has $1.02 trillion in assets under management.
Despite the shock to stock markets caused by COVID-19, Sun Life’s wealth management operations reported net inflows of $400,000. That compares to net outflows of $6.5 million a year earlier. As well, assets under management improved 0.6%.
In the quarter ended March 31, 2020, Sun Life’s earnings rose 7.4% to $770 million from $717 million a year earlier; earnings per share increased 9.2%, to $1.31 from $1.20. Those gains are largely due to stronger income from the insurer’s North American businesses and gains on the sale of securities. As well, underlying income from its Asian businesses jumped 27.0%, reflecting higher insurance demand from that region’s growing middle class.
Sun Life continues to expand its wealth management business. For example, the company recently purchased 80% of U.K.-based InfraRed Capital Partners. That firm advises institutional investors on their infrastructure and real estate investments. It has $16 billion in assets under management.
The company paid $515 million for that initial 80% stake. It also has an option to purchase the remaining 20% in five years.
As part of the deal, Sun Life will invest a further $530 million in InfraRed’s operations. That will help it launch new products, particularly as governments target new infrastructure projects as a way to spur their economies after the COVID-19 pandemic ends.
Meanwhile, the company aims to pay out 40% to 50% of its earnings (before unusual items) as dividends. In the latest quarter, the payout ratio was 42%. That suggests there’s room to keep raising the dividend.
In December 2019, the company raised your quarterly dividend 5.0%. Today’s annual rate of $2.20 yields a high 4.0%.
Recommendation in Canadian Wealth Advisor: Sun Life Financial Inc. and Manulife Financial Corp. are buys.