Personal Finance, Stock Market Series

Are Canadian Insurance Companies Great Investments?

In addition to bank stocks, I also look into insurance companies because they also pay dividends.  But are they great investments to buy for your portfolio? Let’s take a look.

Three of the biggest Canadian insurance companies are Manulife Financial (TSE:MFC), Sun Life Financial (TSE:SLF) and Great-West Lifeco (TSE:GWO).  They all have offices all over the world and have subsidiary companies.

Here is the financial statement analysis of Manulife Financial (TSE:MFC):

Screen Shot 2017-08-07 at 8.36.01 PM

Here is the financial statement analysis of Sun Life Financial (TSE:SLF):

Screen Shot 2017-08-07 at 9.59.13 PM

Here is the financial statement analysis of Great-West Lifeco (TSE:GWO):

Screen Shot 2017-08-09 at 11.07.20 PM

I realized insurance companies tend to have low payroll, low depreciation, and low capital expenditure.  I guess this make sense since they do not need to buy equipment or land to operate the business.  In addition, insurance companies do not have to hire a lot of full-time employees (many of them are independent advisor instead) to sell their products.

However, their net income on total revenue is really low due to policyholders’ payouts. In fact, Manulife’s net income on total revenue is decreasing on a yearly basis. This is not a good sign because Manulife is not benefiting from some kind of long-term competitive advantage.

On the other hand, Sun Life’s net income on total revenue is increasing yearly. Moreover, the company has the highest earnings per share and return on equity compared to the other two.  Sun Life also has the lowest P/E ratio of 11.98.

Lastly, I would have 3% of annual return from dividends if I buy Manulife with $8,800 right now with the current stock price of 25.64.   Furthermore, I would have 3.4% of annual return from dividends if I buy the company with $8,800 right now with the current stock price of 48.50.

Great-West Lifeco would give me the highest annual return from dividends of 3.9% if i buy the company right now with $8,800 with the current stock price of 36.06.

Ultimately, insurance companies do not provide higher returns than the banks.   Nevertheless, insurance companies are just as save as banks to dock your money into.

If I were to choose which of the three companies I would invest in, I would choose Sun Life because the company seems to have a more durable competitive advantage long-term.

I will do more analysis next time! Please post any comments below.   Catch you on the flip side!

2 thoughts on “Are Canadian Insurance Companies Great Investments?”

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