Sun Life Is a Bright Spot for Dividend Investors
by Peter Cohan | July 18, 2011 12:40 pm
Sun Life Financial’s (NYSE:SLF[1]) longtime CEO, Donald Stewart, is stepping down[2] after 13 years in charge. This paves the way for operating chief to take over later this year. the way for COO, Dean Connor, to take over at the end of this year. Connor, who has worked for the company since 2006, says his business style is different than Stewart’s, but but he agrees with the company’s current growth strategy.
Connor’s 28 years of experience in consulting should enable to handle running the company, but should you bet on his ability to manage the company well by buying stock in Sun Life?
Here are two reasons to favor the stock:
- High dividend yield. Sun Life’s annual dividend of $1.49 a share gives a dividend yield of 5.2%[3]. Given that the average
savings account interest rate is less than 1%, this is a great incentive to hold onto the stock in the long run.
- Strong quarterly earnings reports. Sun Life has been able to beat analysts’ expectations frequently, having done so in four of its last five earnings reports
But there are two reasons to avoid it:
- Its stock price is relatively expensive. Sun Life’s price-to-earnings-to-growth of 1.64 (where a PEG of 1.0 is considered fairly priced) means it is a pretty expensive buy. Sun Life currently has a price-to-earnings ratio of 9.8 and
is expected to grow about 6% in 2012.[4]
- Its profits have been dropping while its debt has accelerated. Sun Life has grown revenue but its profit has been declining. Revenue has increased at an average rate of 2.4% over the last five years, but its net income has been declining at a 5.2% annual rate over that period. And its debt has been rising much faster than its cash. Specifically, Sun Life ‘s cash grew at 8.2% annual rate between 2006 ($6.2 billion) and 2010 ($8.5 billion), while its debt rose almost twiceas fast at a 15% annual rate between 2006 ($4.9 billion) and 2010 ($8.6 billion). Its debt level ranks it 20th out of 27 companies in its industry and its debt-to-equity ratio of 0.3 is 11th highest out of 27.
Whether to invest in this stock depends on your appetite for dividends. If you like them, this stock looks like a solid investment. If you like growth, Sun Life looks like a much riskier investment unless Connor can hatch a strategy that spurs earnings growth.
Peter Cohan has no financial interest in the securities mentioned.
Endnotes:- SLF: http://studio-5.financialcontent.com/investplace/quote?Symbol=SLF
- stepping down: http://www.reuters.com/article/2011/07/04/sunlife-ceo-idUSN1E76302W20110704?feedType=RSS&feedName=companyNews&rpc=43
- $1.49 a share gives a dividend yield of 5.2%: http://www.nasdaq.com/asp/SummaryQuote.asp?symbol=SLF&selected=SLF
- 6% in 2012.: http://www.nasdaq.com/earnings/analyst_summary.asp?symbol=SLF&symbol=LF&selected=SLF
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