Manulife Financial Corp. (MFC) cut its dividend Thursday, from C$0.26 to C$0.13, quarterly. It is estimated this will save the company about $800-million per year. Manulife Financial had been a constituent of S&P's Canadian Dividend Aristocrats. Constituents have to consistently increase dividends every year for at least five years. According to the Globe and Mail, one of Manulife's main problems is as follows:
"Manulife has been plagued by the stock exposure that it has as a result of its large variable annuity business. It sells products that are similar to personal pension or retirement plans, where the insurer invests a customer's money and promises future payments. As a result, Manulife built up a massive stock portfolio, which it chose to leave unhedged for a number of years....When markets plunged last year, Manulife had to raise billions in capital to make up for a widening shortfall in the amount it had promised to pay customers decades from now." (emphasis added).
Over the last 10 years, until the cut, MFC had increased its dividend at an annual compound rate of 17.9%, make it one of the better dividend growers in the TSX. You can see the company's dividend history here. Over the last year, shares have ranged from a low of $6.94, to a high of $37.55. I have owned shares of this company in the past and sold them when news of the company's non-hedged position became public. The share may be worth a second look, but not at the current price of $20.59; in my opinion there's not enough downside baked-in. Over the last three years:
This is certainly a sign of poor management. I personally have learned (although I never owned the stock) that no matter how much the newspapers and magazines hype a stock, nor how good the dividend increases are there can always be something that sideswipes you like this. Asset Allocation and true diversification are essential!!!
Posted by: The Dividend Guy | August 07, 2009 at 11:44 AM
Agreed, Dividend Guy. I'm a big believer in the quote "a stock well bought is halfway sold." Basis and diversification are everything...
Posted by: David | August 07, 2009 at 11:50 AM