Manulife Financial (TSX:MFC) has had a strong showing in 2024, making it a compelling stock to evaluate as we head into 2025. But is that set to continue for the next year? Today, let’s dive into the details to determine whether this Canadian financial giant is a buy, sell, or hold.
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Recent performance
Manulife’s third-quarter earnings for 2024 painted a vibrant picture of growth. Core earnings surged to $2.2 billion, up 18% year-over-year, driven primarily by its robust Asia business. New insurance sales in Asia rose 40%, a testament to the company’s strategic focus on expanding in high-growth regions. Manulife stock’s diverse geographic presence, spanning North America and Asia, has been instrumental in weathering economic uncertainties. Therefore, it’s clear that the global approach is paying off.
Manulife stock’s recent performance also highlights investor confidence. Over the past year, Manulife’s share price has climbed steadily. As of now, the stock trades near its highs at $45.37, reflecting market optimism about the company’s future. While the valuation metrics like a trailing price/earnings (P/E) of 16 and forward P/E of 11.1 indicate it’s no longer a bargain-bin find. It still suggests Manulife stock offers reasonable value, especially compared to peers in the financial sector.
The dividend
On the dividend front, Manulife stock continues to shine as an income investor’s favourite. Its forward annual dividend yield of 3.6% is slightly below its historical five-year average of 5%. Yet that’s partly because of the significant stock price appreciation. The company’s payout ratio of 55.5% suggests there’s room to maintain and even grow dividends, thus offering a steady income stream for patient investors.
Looking ahead, Manulife stock’s strategic roadmap is ambitious yet achievable. The company is targeting a core return on equity (ROE) of over 18% by 2027. Significantly higher than its 2023 ROE of approximately 12%. This goal reflects management’s confidence in operational efficiency, cost management, and growth potential in core markets. Additionally, the focus on digital transformation is setting the stage for long-term innovation and cost reduction.
Considerations
One looming question for 2025 is the leadership transition. CEO Roy Gori, who has been pivotal in steering Manulife’s success over the past decade, plans to retire in May 2025. His successor, Phil Witherington, currently heading Manulife’s Asia operations, is widely regarded as a capable leader with a deep understanding of the business. While leadership changes can introduce some uncertainty, Witherington’s proven track record, particularly in the booming Asian segment, suggests that the company’s strategic momentum will likely continue.
Manulife stock’s financial position is another strength that investors can rely on. The company’s total cash holdings stand at an impressive $28.8 billion, and its debt-to-equity ratio of 42.5% is manageable. Operating cash flow of $25.5 billion underlines its ability to sustain operations and shareholder returns. Despite a negative levered free cash flow, this is common in companies undergoing heavy reinvestment for growth. Something Manulife stock is prioritizing in digital and geographic expansion.
Bottom line
For 2025, Manulife stock offers a balanced mix of income and growth potential. Its robust earnings, improving ROE targets, and strategic focus on high-growth regions make it a promising long-term investment. However, with the stock trading near its highs, new investors might consider waiting for a more attractive entry point or adding gradually to mitigate risks.
All considered, Manulife stock is a solid hold for current shareholders, given its strong fundamentals and steady dividend payouts. For those seeking income with a touch of growth potential, it could also be a buy, especially during any market pullbacks. As always, staying informed about upcoming earnings and developments will be crucial to navigating this financial powerhouse.
