Home
 
Choose Your City
Change City

Sun Life says it won't cut dividends, a move competitor Manulife calls unwise

TORONTO - Life insurer Sun Life Financial Inc. (TSX:SLF) reassured investors on Thursday that it won't slash dividend payments in the near future, a decision that a rival Canadian insurer said might be an unwise one for companies the financial services industry.

TORONTO - Life insurer Sun Life Financial Inc. (TSX:SLF) reassured investors on Thursday that it won't slash dividend payments in the near future, a decision that a rival Canadian insurer said might be an unwise one for companies the financial services industry.

"We think dividends are an intelligent thing. But I think the high payout ratios companies exhibit - unless they have a truly low-risk business - are not wise going forward in the financial services industry," Donald Guloien, the CEO of Manulife (TSX:MFC), the country's biggest life insurer, said during an investor conference.

Guloien's comments came shortly after Sun Life president Dean Connor told the same conference that Sun wouldn't alter its dividend payments.

"Our capital levels are strong, our capital sensitivities to market are levels are low and we maintain significant cash on hand," Connor said.

"In the past, we've maintained a total payout ratio in the 50 per cent range, including buybacks and with no further buybacks planned in 2009, we're comfortable we're in a position to maintain this level of payout."

In the second quarter, Sun Life's board approved a 36 cents per share payout, for an annual yield of about 4.5 per cent based on its Thursday stock price.

In the same period, Manulife cut its quarterly dividend in half, to 13 cents, despite a 76 per cent surge in profits during the second quarter. Its annualized yield was 2.3 per cent.

"We believe it will be in shareholder's long-term interest, although obviously it has a short-term impact on stock price... and our reputation," Guloien explained.

"We hope to be able to raise dividends once normalized earnings expectations begin to increase and equity sensitivity to capital markets has been reduced."

Portfolio manager Michael Smedley of Morgan, Meighen and Associates said that in the short term both companies are trying to gain confidence from investors using different methods.

"There's a competitive element to this because Sun Life, having made this brave statement, continues to serve shareholders rather well," he said.

"In the end, I don't think it's critical for either company, one to maintain and the other to cut."

John Stephenson, portfolio manager at First Asset Investment Management said as long as investors keep believing that the companies are working to build shareholder value, then they're likely to "forgive-and-forget" dividend cuts.

He noted that Manulife, and other life insurers, could benefit by moving further into the U.S. market.

"There's still some opportunities for them there," he said.

While Guloien shared a similar plan to diversify its income streams, he told investors that any expansion would be particularly cautious.

"We're not going to diversify beyond our skillset," he said.

"There's lots of opportunities to take ideas from one part of the world into other parts of the world, and leverage the existing skillset that Manulife has without going to far afield. The dumbest thing to do would be... to try to get into business we know very little about."

"There are lots of small and medium size deals that are attractive today," he added, noting that attractively priced Canadian and U.S. buyers from distressed companies were particularly luring to Manulife.

Manulife shares were up 55 cents to $20.90 on the Toronto Stock Exchange. Sun Life shares climbed 14 cents to $31.45.

 
 
You Might Also Like