Outperform the TSX with Sun Life Financial

SLF - Sun Life FinancialSun Life Financial is a leading international financial services organization. The company sells insurance, wealth and asset management solutions, and customized health programs to millions of consumers worldwide. It is a leader in US group benefits and insurance and wealth solutions in the Canadian market.

Its balanced and diversified businesses comprise of Asset Management, MFS Investment Management (29% of 2018 income), individual insurance (28%), group insurance (19%), wealth (12%) and run-off (12%). The company has reached $1 trillion in assets under management.

Sun Life operates through five business segments: SLF Canada, SLF U.S., SLF Asset Management, SLF Asia, and Corporate. Canada is its largest market accounting for 33% of 2018 net income, followed by Asia (17%), USA (16%), and the UK (5%). Sun Life has operations in 26 countries worldwide; and operates through a large network of 4,000 advisors located in more than 1,200 communities across Canada. Nearly 70% of these advisors are licensed to sell both insurance and wealth solutions, which helps to deliver holistic financial planning advice to its clients. Sun Life has a huge customer base consisting of individuals, large and small businesses, and public and private sector companies.

Investment Data

Revenue Growth & Market Exposure

Sun Life’s business is highly diversified by its products, geographies and client base which helps it to steer through market volatility and uncertainties. The company offers a broad range of protection and wealth products and services such as insurance, investments, advice and asset management. Canada is its largest and well established market, with the company commanding leading market positions in group pensions, group benefits, and individual insurance. Sun Life has a wide distribution network consisting of advisors, 3rd-party partners, and distributors.

Sun Life has been around since 1865 and has developed a deep understanding of its clients’ financial needs. It is also improving the ease of doing business for its clients who can now reach the company through various touch points like mobile, online, by phone, or in person. Sun Life’s digital investments are also bearing fruit with 1.5 million new clients added in Canada during the most recent quarter. The company has digitized financial needs analysis, product illustration, application and fulfillment processes in most of its Asian markets making it more convenient for its customers.

The company continues to invest in enriching its client service, distribution capabilities, as well as digital and data analytics. Its asset management business continues to post strong performance results driven by investment in institutional fixed income capabilities. As a trusted market leader offering a full suite of solutions, the company is in a good position to benefit from a rising aging population and the growing financial needs of customers.

Dividends

Sun Life has a high payout ratio of 51% and an attractive dividend yield of 3.8%. The company last raised its dividend by 10% (on an annual basis) and has compounded its dividend at 8% CAGR over the last three years. The company also has a share repurchase plan and recently bought back approximately 4 million common shares.

Sun Life is targeting 8%-10% EPS growth over the medium term and a payout ratio of 40%-50%, which should enable the company to hike its dividends in the mid to high single-digit range going forward. Past organic investments and acquisitions should also support earnings growth. A strong capital position further supports Sun Life’s investment in organic growth as well as its pursuit of M&A opportunities.

Sun Life’s total shareholder return has averaged 10% per annum over the past five years. The company is well-positioned to leverage from growing trends of shifting demographics, growth in Asian markets and digitization. A strong customer focus, balanced and diversified business model and broad product portfolio provide a deep moat to Sun Life’s business.

Competition

Sun Life competes with the likes of leading Canadian insurance companies such as Manulife Financial Corporation TSE:MFC, Great-West Lifeco TSE:GWO, Industrial Alliance TSE:IAG, and Intact Financial TSE:IFC.

The company faces intense competition from insurance companies, banks, asset managers, mutual fund companies, financial planners and other service providers. The company also faces constant headwinds from rapidly evolving technology, as a result of which several new entrants have emerged who use new and low cost digital-based business models such as insurtechs and robo-advisors. High financial ratings, diversified businesses, a wide geographic presence, and a leading industry position differentiate Sun Life from its contemporaries.

Bottom Line

Sun Life is a leader in providing group benefits, group retirement services, and individual insurance and wealth management solutions. The company enjoys a leading position in attractive markets globally. It is favorably placed to gain from a growing middle-class segment and emerging trends in the Asian markets, expanding group benefits market in the U.S., and consolidation in the asset management industry.

Sun Life has the scale, proven long-term track record and broad product portfolio to take advantage of these opportunities and gain additional market share. A reasonable payout ratio and sustained earnings growth represent enough room for future dividend growth.

With that said, the dividend growth misses the mark for me. The stock does better than the TSX and that’s a win but you can do better with some of the banks for less volatility.

slf vs Indexes

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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