In the financials sector, insurance company Manulife Financial Corp. (TSX:MFC)(NYSE:MFC) is a company many Canadian investors are looking to for dividend income, particularly in this era of rock bottom interest rates and depressed bond yields.
The company’s mid-single-digit dividend yield is attractive. However, the stock has encountered headwinds related to central bank stimulus related zero-interest-rate policies, globally. In this article, I’m going to discuss pros and cons of owning this stock in this environment.
Manulife’s stock price is now trading around eight-year lows. The markets have reacted sharply to companies with high levels of sensitivity to the current macroeconomic environment.
With Manulife’s net income down drastically since the coronavirus hit, and the outlook for the company’s investment income bleak, the valuation Manulife has been granted by the market is far below its long term average. The company is now trading well below book value and is now in deep value territory.
That said, Manulife’s stock is cheap for a reason. With future earnings reductions and writedowns likely, investors ought to be careful with putting too large of a stake at play with this stock. The company’s dividend is relatively stable and its business model remains solid. Nibbling at these levels could prove to be a good investment for income investors long term.
Invest wisely, my friends.
