I own this stock of Manulife Financial Corp (TSX-MFC, NYSE-MFC). In May 2005, I was look for good companies to buy at a reasonable price. This stock met my criteria.
When I was updating my spreadsheet, I noticed the 5 and 10 year EPS growth does not tell the whole story about EPS growth. EPS growth looks to be over the past 5 and 10 years at 7.54% and 21.96%. However, looking at the 5 year running average we get growth of 19.78% over the past 5 years and negative growth over the past 10 years are 2.20%.
The 5 Year Running Average for 5 years looks at average growth for 5 years to 2013 compared to the average growth for the 5 years to 2018. After 2008 EPS was really low until 2013 when they had a good year. The 5 year running average for 5 years captures this fact.
The 5 Year Running Average for 10 years looks at the average growth for the 5 years to 2008 and compares that the average growth for the 5 years to 2018. The 10 year growth looks really good because exactly 10 years ago was a really bad year. However, prior to 2008 EPS was much better than after 2008. The 5 Year Running Average for 10 years captures this.
This insurance company was, as were all insurance companies, hit hard by the 2008 bear market and recession. An very low interest rate environment is bad for Life Insurance companies. In 2009 they cut their dividend by 50%. Things have been improving as they started to increase the dividends again in 2014. This year they will be back to the old dividend level of 2008. In 2008 was their highest level of dividend payments.
The current dividend yield is moderate as it is at 4.80%. The yield was in the low to moderate range until the 2008 problems. Of course, the stock price dropped because of 2008 and the yield moved up. The 5, 10 and historical median dividend yields are 3.48%, 3.51%and 2.84% respectively.
They can afford their dividends. The Dividend Payout Ratio for EPS for 2018 is 39% with 5 year coverage at 49%. The DPR for CFPS for 2018 is 9% with 5 year coverage at 10%.
Since this is an life insurance company, you want assets to cover the contract liabilities. The coverage could be better as it was in 2018 at 0.99. You also want to look at contract liabilities compared to total debt and this ratio is fine at 0.50. I find the Liquidity Ratio low at 1.18, but mostly the Liquidity Ratio is ignored for this sort of financial. The Debt Ratio is fine at 1.07 as you would want this to be at 1.04 or higher.
The Total Return per year is shown below for years of 5 to 19 to the end of 2018. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See charts below.
The total return has been quite low for long term investors. I am a long term investor and my return has been low. However, I do expect this to improve in the future. I did not expect that it should take so long for interest rates to recover, but the thing is that these situations last longer than you ever image they will.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2013 | 5 | 11.84% | 2.11% | -1.54% | 3.65% |
| 2008 | 10 | -0.94% | 2.52% | -0.71% | 3.23% |
| 2003 | 15 | 5.55% | 2.84% | -0.51% | 3.35% |
| 1999 | 19 | 8.30% | 8.38% | 3.98% | 4.40% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 10.82, 13.78 and 17.74. The 10 year corresponding ratios are 11.02, 13.76 and 16.80. The historical ratios are 11.37, 14.14 and 16.31. The current P/E Ratio is 7.95 based on a stock price of $20.82 and 2019 EPS estimate of $2.62. This stock price testing suggests that the stock price is relatively cheap.
I get a Graham Price of $35.50. The 10 year low, median, and high Price/Graham Price Ratios are 0.68, 0.91 and 1.06. The current P/GP Ratio is 0.55 based on a stock price of 20.82. This stock price testing suggests that the stock price is relatively cheap.
I get a 10 year median Price/Book Value per Share Ratio of 1.14. The current P/B Ratio is 0.97 based on Book Value of $41,142M, Book Value per Share of $21.38 and a stock price of $20.82. The current Ratio is 15% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get an historical median dividend yield of 2.84%. The current yield is 4.80% based on dividends of $1.00 and a stock price of $20.82. The current yield is some 69% above the historical yield. This stock price testing suggests that the stock price is relatively cheap.
The 10 year median Price/Sales (Revenue) Ratio is 0.77. The current P/S Ratio is 0.83 based on 2019 Revenue estimate of $49,199M, Revenue per Share of 24.96 and a stock price of $20.82. The current ratio is 8% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
Results of stock price testing is mostly that the stock price is relatively cheap. However, you cannot ignore the P/S Ratio testing. It is revenue that pushes the ultimate earnings and cash flow. However, since this is a Life Insurance company Assets under Management also is the pusher of earnings and cash flow for the future. Revenue is not grown well, but AUM is. Price is probably cheap to reasonable.
When I look at analysts’ recommendations, I find Strong Buy (3), Buy (10) and Hold (2). The consensus would be a Buy. The 12 month stock price consensus would be $28.08. This would imply a total return of $39.67% with 4.80% from dividends and 34.87% from capital gains.
See what analysts are saying about this company on Stock Chase. They have mixed feelings. Christopher Liew of Motley Fool likes this stock. Liz Campbell on Simply Wall Street talks about the company’s P/E Ratio. The Canadian Press via CTV News says the company posted record earnings.. Christopher Katsarov on the Globe and Mail discusses an judgement the company is involved with.
Manulife is the largest of the three major Canadian life insurers by market capitalization, ahead of Sun Life and Great-West Life. It provides financial protection and wealth management products and services to individual and group customers in Canada, the United States, and Asia. Its web site is here Manulife Financial Corp.
The last stock I wrote about was about was IGM Financial (TSX-IGM, OTC-IGIFF) ... learn more. The next stock I will write about will be Choice Properties REIT (TSX-CHP.UN, OTC-PPRQF) ... learn more on Wednesday, February 20, 2019 around 5 pm. Today on my other blog I will write about My Budgeting… learn more on Tuesday, February 19, 2019 around 5 pm.
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