Sun Life Financial Inc. 2

On my other blog I am today writing about What's Wrong with Finance continue...

Sound bite for Twitter and StockTwits is: stock is cheap to reasonable. Insurance companies have been having a hard time since 2008. They are finally beginning to increase dividends again. You make money long term when you buy good companies when they are cheap. See my spreadsheet at slf.htm.

I own this stock of Sun Life Financial Inc. (TSX-SLF, NYSE-SLF). After I sold my CIBC bond in 2000 I had money to buy some stocks so I made a hit list and looked for ones on this list selling at a reasonable price. This stock was selling at a reasonable price at that time.

In 2014 the outstanding shares were increased by 3M shares for stock options. This is a 0.49% increase. This increase is rather normal. These shares have a book value of $83M and this number of shares would be worth $125.8M at the end of 2014.

Over the past year re insider trading, there was $32.2M of insider selling and net insider selling of $31.9M with very little insider buying. There is not much in insider ownership, but the CEO does have shares worth around $2.9M.

The 5 year low, median and high median Price/Earnings per Share Ratios are 8.75, 10.40 and 12.05. The corresponding 10 year values are higher at 12.21, 13.50 and 14.78. The 5 year ratios are rather low. The current P/E Ratio is 12.38 based on a stock price of $39.61 and 2015 EPS estimate of $3.20. I think that this stock testing suggests that the stock price is reasonable. The P/E Ratio would have to be 10.00 or lower for me to think that the stock is cheap via this test.

I get a Graham price of $43.05. The 10 year low, median and high median Price/Graham Price Ratios are 0.78, 0.99 and 1.10. The current P/GP Ratio is 0.92 based on a stock price of $39.61. The theory behind the Graham Price is that if this ratio was 1.00 or less the stock was at a good price. This stock price testing suggests that the stock price is reasonable. However, the Graham Price theory suggests that the stock price is cheap.

I get a 10 year Price/Book Value per Share of 1.35. The current P/B Ratio is 1.54 based on a BVPS of $25.74 and a stock price of $39.61. The current P/B Ratio is some 14% higher than the 10 year median value. This stock price testing suggests that the stock price is reasonable.

The 5 year median dividend yield is 5.02% and the current dividend yield at 3.64% is some 27.5% lower. This initial test suggests that the stock price is expensive. The historical average dividend yield is 4.50% and this is some 19% higher than current dividend yield of 3.64%. The historical median dividend yield is 2.55% and this is a value 42.6% lower than the current dividend yield of 3.64%. The 10 year median dividend yield is 4.18% which is 13% above the current dividend yield of 3.64%.

This testing gives us a mixed bag. The historical median dividend yield is low because the dividend yields started off very low when this stock was initially issued some 15 years ago. The historical median dividend yield is interesting. A median value shows you what the dividend yield is most likely to be and at 2.55% is much lower than the dividend yield has been for the last 7 years or right around 2008 when insurance companies got into trouble.

So it would seem on an historical basis, a dividend yield of 3.64% is rather high. This would suggest that the current stock price is rather cheap.

When I look at analysts' recommendations, I find Strong Buy, buy, Hold and Underperform recommendations. Most of the recommendations are a Hold and the consensus recommendations would be a hold. The 12 month stock price consensus is $43.80. This would imply a total return of 14.21% with 10.58% from capital gains and 3.64% from dividends. For this sort of return I would expect Buy recommendations.

This is the second of two parts. The first part was posted on Tuesday, April 14, 2015 and is available here. The first part talks about the stock and the second part talks about the stock price.

David Pett in a recent Financial Post article, says that Sun Life is posed to raise their dividends for the first time since the financial crisis. There is a recent Motley Fool By Robert Baillieul talking about where you should buy Sun Life or Manulife. On Dakota Financial News Samantha Reynolds talks about recent analysts ratings for Sun Life. According to Business WireA. M. Best has put out a special recent report on Canadian Insurance Companies. You might also be interested in what analysts have to say via Stock Chase.

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.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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