As with all market turbulences, opportunities can be found and the Canadian insurance companies got on my radar recently. I have had them on my watch list for the past few years but only recently have I started looking at them again. Their earnings have not met the analysts’ expectation and concerns abound with the economic difficulties around the world… One question for many investors is if the dividend is safe. Anyone with a crystal ball?
Here are the companies at a glance.
|Company||Ticker||Price||Dividends||Yield||P/E||Payout Ratio||Market Cap|
If you look closely at the data, SunLife appears to be the outlier. It would seem to still be priced high and it has a higher P/E than its peers. Something to consider for all the SLF owners (myself included).
It has been few years now that Manulife TSE:MFCNYSE:MFC got hit hard during the market downturn and it still has not recovered. It has hit the 52-week lows a couple of times and has done so just recently. In 2008, it lost 50% of its valuation and cut its dividends. It still pays dividend and is working on their financial stability. It is a large corporation with a presence worldwide that can be seen as a gift or a curse depending on the world economies.
Earlier in the year, I got set up with Sun LifeTSE:SLFNYSE:SLF under the transfer agent to DRIP. I also reviewed it back in May but as you probably know, historical figures can’t tell you about the future … Insurance companies are exposed to natural disasters and they got caught in the middle of the bad loans like other financial institutions back in 2008 without the ability to rely on increasing bank fees like many banks did during their recovery to profit :)
A recent article in the Globe & Mail highlights some good points about the health of Sun Life from an investor perspective.
- First quarterly lost since 2009
- Payout ratio concerning for the current dividends – although the company reaffirms that cash flow is adequate
- Change in management with the CEO stepping down
Another problem, Mr. Sedran noted, is that it alienates long-term investors. When Manulife slashed its dividend it became the first major Canadian financial institution to do so since the early 1990s, and the move sent its stock tumbling 15 per cent in one day.
Great-West LifeCo TSE:GWO is one corporation under the Power Corporation TSE:POW umbrella. If you already own Power Corporation or Power Financial TSE:PWF, you may want to reconsider as you already have a significant exposure to GWO.
GWO’s last quarter results were better than the previous year and showed promise of growth for the year overall. However, considering the sector is under fire due to the low interest rates and general economic uncertainties with Europe, GWO is down like everyone else. It is holding up better as you can see. Consider Power Financial if you want some exposure but not go in exclusively.
Industrial Alliance – IAG
Industrial Alliance TSE:IAG is the smaller of the group. I find that IAG is almost like the National Bank TSE:NA in the financial sector – not quite the size of the big player but ready to play with the big boys :). IAG is a North American player for now and even though it doesn’t have business in Europe, it is still affected by the low-interest rates and equity markets like the other insurance corporations.
- Payout Ratio is best of group
- P/E is best of group
- Yield is lowest of group
Interestingly enough, I have dealt with them all through either our medical benefits plan or our defined contribution plan. They all have pros and cons with respect to those products from a consumer perspective. They do sell life insurance and Great-West LifeCo benefits from my contribution at the moment.
I like MFC at the 11$ price range. It’s bouncing against its 52-week low at this price and it is the same lows from the 2008 financial melt down. Since then, they have improved their balance sheet and I expect a recovery. They proved that they can weather the storm. This is not a dividend growth investment but rather a value opportunity.
GWO would be my second choice. They have not been impacted directly and are weathering the storm better than its peers. Consequently, you can buy PWF or POW for only partial exposure. See my POW analysis to understand the ownership structure.
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.