Unfamiliar, but Well-Known

05/12/2006 12:00 am EST


Charles Carlson

Editor, DRIP Investor

Charles Carlson  is an expert in dividend reinvestment plans. But regardless of whether one uses DRIPs, the advisor--from the Dow Theory family--offers sound, conservative advice, such as his latest unfamiliar, but well-known, stock pick.

"Manulife Financial (MFC NYSE) is probably not a familiar name to most individual investors. That’s not surprising since the company is based in Canada. However, you might be surprised to know that Manulife is the company behind John Hancock Financial. You might also be surprised to know that, in addition to being the largest life insurance company in Canada, Manulife is the second-largest life insurer in North America (based on market capitalization) and the fourth-largest in the world.

"And you might be surprised to know that the company has more than $319 billion (US dollars) under management. I like the insurance/wealth management sector, and Manulife offers one of the more attractive plays in the group. The company recently implemented a direct-purchase plan whereby investors may buy the first share and every share directly. Thus, these shares are very accessible to any investor, US or Canadian.

"Manulife offers a variety of insurance and investment products, such as pension products, annuities, and funds. The firm expanded its business dramatically with the 2004 acquisition of John Hancock. Per-share profits have grown nicely for the firm in recent years, rising from $1.21 per share in 1999 to $3.36 in 2005. Manulife should keep the earnings momentum going in 2006. The consensus earnings estimate for 2006 is $4.22 per share, representing a 25% gain over 2005 results.

"The stock is currently trading at 15 times the consensus 2006 earnings estimate, not necessarily a steal but a reasonable valuation for a firm showing strong double-digit earnings growth. Dividend growth has dovetailed nicely with the growth in profits. The payout has more than doubled since the first quarter of 2004. The quarterly rate is approximately $0.30 per share, although this rate will vary depending on prevailing currency exchange rates between US and Canada. Future earnings growth should help fuel additional dividend increases.

"Manulife has been a profitable investment for shareholders. The stock has nearly tripled since its 2003 low of nearly $22. Despite that strong price performance, these shares have further upside. The wealth management business, driven in part by demographics, should see robust growth over the next decade. Also boosting long-term growth is the firm’s expansion in China. The company’s 51%-owned subsidiary, Manulife-Sinochem, has more than 4,500 agents and employees serving almost 220,000 customers.

"Manulife offers an attractive way to play the insurance and financial services sectors. The stock could take a near-term breather given its impressive run in the last few years. However, I like the shares at current prices and would be especially bullish on price dips to the mid-$50s. Manulife’s new direct-purchase plan has a minimum initial investment of $500. The firm will waive the minimum if an investor agrees to automatic monthly investment via electronic debit of a bank account of at least $50."

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