Tuesday, March 27, 2012

Sun Life Financial Inc

I have just recently reviewed Emera (TSX-EMA) and Fortis (TSX-FTS). Analysts have given Emera a consensus recommendation of Hold (but it had 3 buy recommendations). Analysts have also given Fortis a consensus recommendation Hold (but it has only 1 buy recommendation). What I found is that people can be very bad on predicting the future. Personally, if I was in the market to buy a utility, I would buy Fortis because it passed my reasonability stock tests, especially the dividend yield one.

Now, I shall talk about Sun Life Financial (TSX-SLF) which is the stock that I want to talk about today. I own this stock. I first bought this stock in 2000 and some more in 2001, 2003 and 2006. I have made a 1% per year return on this stock. This is not what I had in mind when I bought it. The only reason I have a positive return is because of dividends. I calculate that I have made a return of 4.76% per year in dividends.

What can I say about this stock, except it has not been a happy year for Sun Life Financial. For both this company and Manulife I am waited out the bad times. I have to wonder if it was worth it for one of my stocks to have so much down time. Would it have been better for me to have exit these stocks and then come back for better times?

Unfortunately, I really do not know the answer to this. I have gone through good times and bad times on some of my other stocks and have, over the long term, done well. Also, a lot of the problems it is having, such as very low interest rates, are not caused by the management of this company. However, management is not totally blameless.

The dividends on this company have been level since 2008, or for over 4 years. There is no indication when this might change. The Dividend Payout Ratio for cash flow is reasonable with a 5 year median rate of 31.2% and a 2011 DPR of 32%. However, this is above 10 year median DPR of 22%. The DPR for earnings is expected to be lower than it has been for a few years at 56%. However, this is quite a bit above the 10 year median DPR of 32%.

I think the 10 year median rates are important here because the DPRs have been unusual over the past few years. Looking at the 10 year DPRs, I cannot see an increase happening for some time. However, I think the worst is over and so I do not think that the dividends will be cut either.

Growth over the past 5 and 10 years has been low to non-existent. Revenue per share over the past 5 years is down 2% per year and is flat over the past 10 years. I cannot calculate earnings, since this year’s is negative. However, even if they make $2.56 as is forecasted for 2013, earnings would still be down over the past 5 years and would be up only about 2% per year over the past 10 years.

Cash flow has grown very mediocre over the past 5 and 10 years at 3% per year and 1.5% per year respectively. There has been no growth in Book Value over the past 5 years, but this might have more to do with the new accounting rules than anything else. Book Value has only grown at the rate of 2.3% per year over the past 10 years.

The current Liquidity Ratio is 1.58 and is this good. The Debt Ratio is lower at 1.08, but this is rather normal for a financial institution. The current Leverage and Debt/Equity Ratios at 16.48 and 15.29 are quite high, but these tend to be high for financial institutions. They are also much higher than the 5 year median ratios of 11.83 and 10.84, respectively.

There is no happy news where Return on Equity is involved. They did not make any money last year. That gives them a very low 5 year median ROE of just 5.4%. The 5 year median ROE based on comprehensive income is even lower at just 3.2%.

Currently, I still intend to wait out the problems on this stock and hold my current shares. Normally shares of a Life Insurance company would be for conservative investors, but because of recent financial problems, this is not currently the case and buying Life Insurance companies would be risky at this time.

Sun Life Financial is a leading international financial services organization providing a diverse range of protection and wealth accumulation products and services to individuals and corporate customers. Chartered in 1865, Sun Life Financial and its partners today have operations in key markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. Its web site is here Sun Life. See my spreadsheet at slf.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. I heard somewhere that YOU ARE in the latest MoneySense issue! Of this month actually.

    CONGRAD :)

    I learn a bunch of things by reading you, did you know?

    Emera is a good stock. I had been holding for a couple of years, great dividend, good grow stock. I love Emera. No problem with it. But its like everything else, need a moderate investment.

    Great-West, Sun Life, all of the other insurance companies we find out there, Manulife.... its a big no-no for me. I don't see insurance companies as good investment. They have to give a lot of cash away to pay off their customers for claims and stuff. I always been amused when reading about Manulife. We had the example with that stock. I prefer to stay away from everything related to insurance. That's for me )