Canada-based Manulife Financial Corporation (MFC) is an international financial services giant that helps individuals, corporations, and institutions in achieving their financial goals through its wealth, asset management, and insurance businesses.

Manulife also offers annuity products and services. The company operates through its Manulife brand across its offices in Canada, Asia, and Europe, and through its John Hancock brand in the United States. Manulife has roughly 120,000 agents and a multi-channel distribution network that supports over 30 million clients.

Shares trade on both the TSX (Toronto Stock Exchange) and NYSE. The stock has hovered between $10 and $20 for over a decade on the American exchange. Despite shares failing to advance meaningfully, the company has been making substantial developments, including growing its profits and dividend during this period. Adding the notion that Manulife shares appear to be attractively priced, I remain bullish on the stock.

Latest Financials

Manulife entered fiscal 2022 on a great note. In its Q1 results, the company reported core earnings of $1.6 billion, a decline of 4% compared to the prior-year period. The decline in core earnings was the result of softer business gains, an unfavorable effect of markets on seed money investments, and lower in-force earnings in U.S. Annuities. Still, the decline is quite reasonable considering that last years results were somewhat inflated, and that raising money has more or less frozen in the current trading environment.

In fact, although attracting capital has become increasingly difficult lately, net inflows in retail came in at $4 billion during the quarter. This compares to $6.5 billion last year, but its still a robust performance outcome, all things considered.

Its also worth noting that management mentioned the Asia Retail segment, achieved higher gross inflows in mainland China and Japan, matching the companys efforts of expanding its Eastern operations.

Despite lower core earnings and softened inflows, the bottom line came in very strong. Specifically, net income reached $3 billion, $2.2 billion higher year-over-year. The massive increase was powered by gains from the direct result of markets. The increase appears quite substantial as well as the company had reported losses in the market in Q1 of last year. Overall, seeing market-related gains during a period when every portfolio is deep in the red, is rather impressive, and it highlights the companys asset management capabilities.

Particularly, market gains reflected the fortunate effect of fixed income reinvestment activities, higher-than-expected returns on alternative long-duration assets, as well as favorable credit experience. Overall, I believe that Manulifes asset base is well-positioned to benefit from a rising-rate environment.

All variables combined, Core EPS (which excludes any one-off investment gains) for Q1 came in at $0.77, 6% lower year-over-year. Unlike occasionally in the past, the per-share metrics were not intensely impacted by buybacks, as the share count declined by just 0.15%, compared to last year.

Dividend & Valuation

Manulife has grown its annual dividend per share invariably since 2014 in its local TSX listing. As a result, however, U.S.-based investors have been moderately impacted by currency effects (as evident in the somewhat variable dividends in the bar chart below). Still, they have altogether enjoyed matching dividend growth.

Manulifes latest DPS increase was by an assertive 17.9% from CAD 0.28 to CAD 0.33. However, I would anticipate future dividend hikes to be milder, and converge towards their seven-year average of about 8.8%. As the stock is currently yielding close to 5.8%, high single-digit dividend hikes should be more than sufficient to delight investors, in my view.

Consensus EPS estimates for fiscal 2022 point to $2.50 for fiscal 2022, suggesting a dividend payout ratio of around 41%. Thus, the company should have enough room for noteworthy dividend hikes moving forward.

Based on the same EPS estimate, shares of Manulife appear to be trading with a forward P/E close to 7.0 attached, which in my view somewhat undervalues the company. From a next-twelve-month outlook, the multiple stands at 6.7, which is one of the humblest multiples Manulife has ever traded at.

From another standpoint, Manulife stock is currently trading at 0.8X its book value. Going long on financial holding companies, including insurers under their book value, is typically regarded as a smart choice.

Wall Street’s Take

Turning to Wall Street, Manulife Financial features a Moderate Buy consensus rating based on four Buys and eight Holds assigned in the past three months. At $21.70, the average Manulife Financial stock projections suggest 23.51% upside potential.

Takeaway

Manulife Financials stock performance over the years has likely dispirited some investors. However, the company’s underlying financials remain quite healthy, while the most recent results featured several noteworthy highlights considering the overall state of the market.

With the company actively growing the dividend, rate hikes accelerating lately, and the yield standing at a hefty 5.8%, dividend growth investors are likely to find Manulifes investment case very enticing. Adding to the fact that shares are exchanging hands below book value, Manulife should have a rather wide margin of safety as well.

Disclosure