Outperform the TSX with Sun Life Financial

Sun Life Financial is a leading international financial services organization. The company sells insurance, wealth and asset management solutions, and customized health programs to millions of consumers worldwide. It is a leader in US group benefits and insurance and wealth solutions in the Canadian market.

Its balanced and diversified businesses consist of Asset Management (31% of 2019 net income), individual insurance (24%), group insurance (19%), wealth (15%) and run-off (11%). It is also a leader in group asset management and has reached $1.1 trillion in assets under management.

Sun Life operates through five business segments: Canada (31% of 219 net income), U.S. (16%), Asset Management (31%), Asia (17%), and Corporate. Sun Life has operations in 26 countries worldwide and works through a large network of advisors, 3rd-party partners, and distributors. Nearly 70% of these advisors are licensed to sell both insurance and wealth solutions, which helps to deliver holistic financial planning advice to its clients. Sun Life has a huge customer base consisting of individuals, large and small businesses, and public and private sector companies.

Investment Data
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Revenue Growth & Market Exposure

Sun Life’s business is highly diversified by its products, geographies and client base which helps it to steer through market volatility and uncertainties. The company offers a broad range of protection and wealth products and services such as insurance, investments, advice and asset management. Asset management and individual insurance together accounted for nearly 55% of the company’s net income in the last year. Its insurance and wealth & asset management businesses registered sales growth of 11% and 8% CAGR in the last five years. Canada is its largest and well-established market, with the company commanding leading market positions in group pensions, group benefits, and individual insurance. 

Sun Life has been around since 1865 and has developed a deep understanding of its clients’ financial needs. It is also improving the ease of doing business for its clients who can now reach the company through various touchpoints like mobile, online, by phone, or in person. The company has digitized financial needs analysis, product illustration, application and fulfillment processes in most of its Asian markets making it more convenient for its customers. Sun Life completed the rollout of client mobile apps across its markets in Asia and created a digital platform that provides a single point of contact for a wide range of health resources for Canadians. Its asset management business continues to post strong performance results driven by investment in institutional fixed income capabilities. As a trusted market leader offering a full suite of solutions, the company is in a good position to benefit from a rising aging population and the growing financial needs of customers. Customers trust Sun Life with all their critical information.

Sun Life’s revenues have grown at a rate of 14% CAGR in the last five years. Strong market growth, the scale and global presence in key markets drove its business growth. The company witnessed strong growth in all local as well as international insurance markets. In the fourth quarter of 2019, the company announced its intention to acquire a majority stake in InfraRed Capital Partners, a global infrastructure equity manager in London. 

Sun Life’s net income in Asset Management grew 9% driven by growth and fee income on higher average net assets. The company, however, expects to see some slower sales and higher claims as a result of the COVID-19 outbreak.

Dividends

Sun Life sports a payout ratio of ~50% which is in its target range of 40%-50% and an attractive dividend yield of 5.2%. The company last raised its dividend by 10% and has grown its dividend at a rate of 8% CAGR over the last three years. Sun Life returned over $1.8 billion of capital or 60% of its net income to shareholders through dividends and share repurchases in the last year. 

Sun Life completed the integration of the AEB acquisition and achieved a $100 million expense synergy target. It also completed the acquisition of BentallGreenOak, entered into several strategic partnerships, including a new bank assurance arrangement in Vietnam in the last year. Sun Life’s business could suffer from a prolonged low-interest-rate environment, however, its business and geographical mix grants its relative stability. A low leverage (below its long-term target of 25%) and $2.3 billion of cash provide additional flexibility to deploy capital in a disciplined manner.

Sun Life is targeting 8%-10% EPS growth over the medium term and a payout ratio of 40%-50%, which should enable the company to raise its dividends in the mid to high single-digit range going forward. Past organic investments and acquisitions should also support earnings growth. The company is well-positioned to leverage from growing trends of shifting demographics, growth in Asian markets and digitization. 

Competition

Sun Life competes with the likes of leading Canadian insurance companies such as Manulife, Great West Life, Industrial Alliance, and Intact Financial.

The company faces intense competition from insurance companies, banks, asset managers, mutual fund companies, financial planners and other service providers. The company also faces constant headwinds from rapidly evolving technology, as a result of which several new entrants have emerged who use new and low-cost digital-based business models such as insurtechs and robo-advisors. A diversified and balanced business model, strong focus on clients and a prudent risk profile differentiate Sun Life from its contemporaries.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:MFCMFCManulifeFinancial ServicesInsurance - Life0.7518.0626.349.279.271.950.06206.200.574441.120.087258Tollbooth - UnregulatedNONOYESNOCanada1
TSE:GWOGWOGreat West LifeFinancial ServicesInsurance - Life0.6427.1525.1910.3010.302.640.06456.450.663641.750.094347Tollbooth - UnregulatedNONOYESNOCanada1
TSE:POWPOWPower CorporationFinancial ServicesInsurance - Life0.5825.3715.769.759.752.600.07067.060.688541.790.103247Tollbooth - UnregulatedNONOYESNOCanada1
TSE:ELFELFE-L Financial CorpFinancial ServicesInsurance - Life0.30658.002.5126.1826.1825.130.00760.760.199045.000.007623Tollbooth - UnregulatedNONONONOCanada1

Bottom Line

Sun Life is a leader in providing group benefits, group retirement services, and individual insurance and wealth management solutions. The company enjoys a leading position in attractive markets globally. It is favourably placed to gain from a growing middle-class segment and emerging trends in the Asian markets, expanding group benefits market in the U.S., and consolidation in the asset management industry. The recent coronavirus crisis has adversely affected the company’s sales in the Asian market which constitutes a major portion of its total revenue and the stock has significantly declined following the general market trend. However, dividend growth should be driven by earnings growth and cash flow from its business once normalcy returns.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.