Manulife’s Dividend Just Jumped 10%: Is the Stock a Buy?

Manulife (TSX:MFC) stock just raised its dividend by 10.6% last week, which aligns with its 10-year dividend-growth rate of about 10%. The brand new quarterly payout is $0.365 per share, equating to an annual payout of $1.46 per share. To receive the upcoming quarterly dividend on March 20, investors must own the common shares before the ex-dividend date of Feb. 27.

The ability of rising dividends

Although the MFC stock price has been range certain with a resistance at about $27 since 2018, investors saw their dividend income rise 60%. That is the potential power of dividend investing. By doing nothing but sitting in your shares, you may still greater than maintain your purchasing power from rising dividends.

Since Manulife stock’s recent payout ratio was roughly 40% of earnings and it maintains a decently strong S&P credit standing of A, investors can expect its dividend to be protected and proceed growing within the foreseeable future.

The truth is, the shares could also be undervalued.

What’s the valuation and return potential of Manulife stock?

Management may benefit from the low cost shares. The corporate has launched a share-buyback program that might see it cancelling as much as 55.7 million (or about 3%) of its outstanding common stock.

At $26.66 per share at writing, Manulife stock trades at about 8.5 times earnings. It is a discount of about 20% from its long-term normal multiple of about 10.6 times. At worst, the stock is fairly valued based on its normal multiple over the past five years or so. The 12-month consensus price goal of $28.80 across 15 analysts also suggests the life and medical health insurance company is fairly valued. The present stock price also aligns with its book value per share of about $26.49.

Currently, analysts project earnings-per-share growth of roughly 7% per 12 months over the following three to 5 years. If this growth materializes, and MFC stock’s valuation stays the identical, investors can pocket total returns of roughly 12.5% per 12 months — from a 5.5% dividend yield and seven% earnings growth.

Recent results

On February 15, Manulife reported its 2022 earnings results. Net income was stable with a rise of three% to $7,294 million. Diluted earnings per share climbed by 4% to $3.68. Nonetheless, core earnings dropped by 5% to $6,182 million, resulting in an analogous rate decline within the diluted core earnings per share. The return on common shareholders’ equity (ROE) was 14.1%, down from 14.2% in 2021. The core ROE was 11.9%, down 1.1% 12 months over 12 months. The corporate was capable of marginally cut general expenses by 0.6% in 2022 versus 2021.

Within the press release, the corporate listed reasons for lower core earnings as follows: “lower latest business gains in Asia and the U.S., losses from the unfavourable impact of markets on seed money investments in latest and segregated mutual funds (compared with gains within the prior 12 months) and lower net gains on the sale of AFS equities in Corporate and Other, lower net fee income from lower average assets under management and administration in Global Wealth and Asset Management, lower in-force earnings in U.S. Annuities as a result of the variable annuity reinsurance transactions and better charges in our Property and Casualty Reinsurance business in 2022.”

Investor takeaway

Manulife stock appears to be, at worst, fairly valued. It offers a dividend yield of about 5.5% that’s sustainable. Coupled with earnings-growth prospects of about 7% annually, buyers of the common stock today can potentially pocket total returns of, roughly, 12.5%.

The post Manulife’s Dividend Just Jumped 10%: Is the Stock a Buy? appeared first on The Motley Idiot Canada.

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More reading

• 3 Dividend Stocks That Hiked Their Dividends This Month
• 3 Remarkably Low cost TSX Stocks to Buy Right Now
• 3 Stable Insurance Stocks to Construct Wealth for Years
• Higher Buy: Manulife Stock vs. Suncor Stock

Idiot contributor Kay Ng has no position in any of the stocks mentioned. The Motley Idiot has no position in any of the stocks mentioned. The Motley Idiot has a disclosure policy.