Stock Analysis: Manulife Financial Corp (MFC)

This article originally appeared on The DIV-Net October 13, 2008.

Linked here is a PDF copy of my detailed analysis of Manulife Financial Corp (MFC) (alt.1, alt.2). Below are some highlights from the above linked analysis:

Company Description: Manulife Financial Corporation is a life insurance company with customers in the United States, Canada and Asia. It is the holding company of The Manufacturers Life Insurance Company and John Hancock Financial Services.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

MFC is trading at a discount to 1.), 2.) and 3.) above. If I exclude the high and low valuations and average the remaining two, MFC is trading at a 21.0% discount. MFC earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:

1. Rolling 4-yr Div. > 15%
2. Dividend Growth Rate
3. Years of Div. Growth
4. 1-Yr. > 5-Yr Growth
5. Payout 15% of avg.

MFC earned two Stars in this section for 1.) and 2.) above. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (1998-2001, 1999-2002, 2000-2003, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. MFC has paid a cash dividend to shareholders every year since 2000 and has increased its dividend payments for 8 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to >MMA

MFC earned both of the available Stars in this section. The NPV MMA Diff. of the $38,790 is in excess of the $10,000 minimum I look for in a stock that has increased dividends as long as MFC has. If MFC grows its dividend at 15.7% per year, it will take 3 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%. MFC earned a Star since its Years to >MMA of 3 is less than 5 years.

Other: MFC is a member of the International Dividend Achievers™ Index. . Historically, MFC has demonstrated consistent earnings growth from varied products over a diversified geographic footprint. With solid fundamentals and a conservative balance sheet, MFC is one of the best run insurance companies in the industry. The integration with John Hancock has allowed MFC to gain significant market share in the U.S. With an expanding international presence, MFC is well positioned to benefit from growth in emerging markets. As a potential risk for going forward, MFC could be vulnerable to weak equity markets and appreciation of the Canadian dollar.

Conclusion: MFC earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of five Stars. This quantitatively ranks MFC as a 5 Star-Strong Buy.

Using my D4L-PreScreen.xls model, I determined the share price could increase to $41.57 before MFC's NPV MMA Diff. decreases to the $10,000 NPV MMA Diff. that I like to see. At that price MFC would yield 2.32%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $10,000 NPV MMA Differential I'm looking for, the calculated rate is 10.8%. This dividend growth rate is well below the 15.7% used in this analysis.

Not only would I be very comfortable initiating a position in MFC below $29.55, I did just that last week during the market meltdown. Many thanks to my Canadian friends for introducing me to MFC!

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in MFC (1.2% of my Income Portfolio) .

What are your thoughts on MFC?


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