As far as sectors with negative sentiment go, the financial sector continues to be one of the hardest hit in Canada and around the world, for good reason. Concerns around relatively high levels of debt at the consumer, corporate and government levels have shifted the discussion from growth to risk in this sector.
Many large financial institutions continue to pump out large profits. However, the market appears to be bracing in a significant degree of uncertainty into the stock prices of such firms in this environment.
Manulife Financial Corp. (TSX:MFC)(NYSE:MFC) is no exception. This life insurance company has had its outlook downgraded by many investors due mainly to a low-interest-rate environment. This threatens margins over the medium- to long-term. An ultra low interest rate environment is generally positive.
However, there are pockets of the market that react negatively to low interest rates. Insurance companies are one such group. The return Manulife is able to earn on its float is greatly reduced in such an environment. This fact has not compelled investors to jump into Manulife despite its attractive valuation. The company’s dividend yield of approximately 5.5% is solid and is supported by said valuation.
Currently, Manulife is trading at a price to book ratio of less than one and a price to sales of less than one. These fundamentals are hard to ignore, given the strength of Manulife’s cash flows and its ability to manage through this environment given its size. This is one dividend pick with excellent value that all investors ought to consider today.
Invest wisely, my friends.
