Thursday, March 29, 2012

Manulife Financial Corp

Yes, I am in an article on April’s issue of Money Sense. The article is “Stocks that Pay You Back”. I had not read this magazine before. It is quite good.

I own this stock (TSX-MFC, NYSE-MFC). At one time life insurance companies were considered to be rather safe investments. This last recession and current very low interest rates has been very hard on life insurance companies, and especially this one.

I invested in this company first in 2005 and then again in 2006, 2009 and 2010. I have lost at the rate of 11% per year. My dividends were at the rate of 3% per year. Without dividends, my loss would be at 14% per year. My stock has a capital loss of 54% excluding dividends.

Manulife cut their dividends in half in 2009. There has been debate on whether this was really necessary. The dividend was much higher than the net income or earnings, but it was not that high in connection with cash flow. The 10 year median Dividend Payout Ratio for Cash Flow is 14%. It would have only gone to 15% with the old dividend. With the new dividend, the DPR for Cash Flow was around 8%.

However, there are more considerations than DPR for Cash Flow. One is debt levels. The other is DPR for earnings. The 10 year median DPR for earnings is 28%. The DPR for earnings in 2012 is expected to be 40% and then 35% in 2013. I do not expect an increase in dividends within the next few years.

I bought my shares first 8 years ago. Even people who have had this stock for 10 years have lost. The 10 year return would be a loss of 2.3% per year. You would have had to hold the stock for at least 12 years to show a profit and then it would be a profit mostly because of dividends.

2011 was a marginally better year for Manulife than the last couple of years. They managed to make a small amount of earnings, but cash flow was down. Revenue was up substantially in 2011, but analysts feel that revenue for 2012 will be similar to 2010.

Cash Flow growth is low over the past 5 year, but good over the past 10 years. The 5 and 10 year growth in cash flow is 2.5% per year and 11.4/% per year, respectively.

There is no growth in book value over the past 5 years. Earnings have been very low and book value has been going down. Book Value is down by 4.8% per year over the past 5 years. It is up just 4% over the past 10 years.

The current Liquidity Ratio is good as it generally is. The current Debt Ratio is 1.08 and this is quite normal for a financial institution. The current Leverage and Debt/Equity Ratios are rather high at 20.63 and 19.52. They are higher than the 5 year median ratios of 14.69 and 13.64.

The Return on Equity ratio is low as the company did not make much money in 2011. The ROE at the end of 2011 was just 1.1%. The 5 year median ROE is 1.9%. They made no money last year so the ROE would have been negative. The ROE based on the Comprehensive Income is a bit better at 2.3%.

I will be holding on to my shares in this company. The share price is already up some 25% in 2012. This reflects the improvement in the company’s finances. I believe it will recover.

This is a life insurance company in the financial services business. It offers financial protection products (e.g. Life Insurance) and wealth management services (i.e. segregated funds, mutual funds and pension products). They sell products to individuals and business. They are an international company, selling in Canada, US and Asia. This company is listed on Canadian, US, Hong Kong and Philippines Stock Exchanges. Its web site is here Manulife. See my spreadsheet at mfc.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

1 comment:

  1. MoneySense is a great magazine. I first read it when I was passing through Pearson International a few years back and was hooked. I just renewed for another two years.

    I look forward to reading the article tomorrow, Susan!