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Manulife's first dividend hike since 2009 comes as core earnings miss estimates

A pedestrian walks past the Manulife building in downtown Vancouver, on May 3, 2012. THE CANADIAN PRESS/Jonathan Hayward

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A pedestrian walks past the Manulife building in downtown Vancouver, on May 3, 2012. THE CANADIAN PRESS/Jonathan Hayward

TORONTO - The head of Manulife Financial Corp. (TSX:MFC) says that another dividend increase, on top of one announced Thursday, could be possible if the life insurance and wealth management company continues its recent trajectory through to 2016.

"The board will be obligated to discuss it. . . . It may be a surprise, but it will be a very happy occurrence," Donald Guloien, the company's president and chief executive, said Thursday in a conference call with analysts.

The 19 per cent dividend increase announced Thursday by Manulife, the first since the payout to shareholders was cut in half during the financial crisis of 2009, may have surprised investors.

Canada's largest life insurer increased the quarterly dividend by 2.5 cents, to 15.5 cents per common share. It had been cut to 13 cents from 26 cents per share in August 2009, a move that Manulife said would save $800 million a year.

Guloien said that any future dividend hike will depend on whether conditions are still supportive.

"That's assuming that we're still comfortable with the volatility of our earnings," he said. "That we're still comfortable with the capital ratios, that we're still comfortable that the hedging is working as it should, that we're still comfortable with the global capital outlook and it hasn't turned negative again."

Manulife said Thursday that its core earnings — which the company says is the best measure of its performance — was $701 million, up from $609 million a year earlier.

The core earnings — which exclude certain items — amounted to 36 cents per share. That was up from 31 cents per share year over year but analysts were generally expecting earnings of 40 cents per share, according to Thomson Reuters.

Barclays analyst John Aiken said the dividend increase may help investors forget that Manulife's core earnings came in below analyst expectations.

"We believe that this is a distinct positive and may come somewhat of a surprise to the market. However, despite the vote of confidence by the Board on Manulife's outlook, core earnings did come in below expectations," he wrote in a note.

Manulife's net income under standard accounting increased to $943 million, or 49 cents per share, in the second quarter, as the growth of its insurance operations in Asia continued to escalate and its North American mutual fund business improved. A year ago, the insurance company reported net income of $259 million or 12 cents per share.

The company said its performance is improving at a good pace, built on momentum from its Asia business, particularly Japan. Insurance sales in Asia jumped 26 per cent to $304 million in the quarter.

Toronto-based Manulife provides financial products and services including individual and group life and health insurance, pension products, mutual funds and other banking products. It has operations in Asia, Canada and the U.S., where it owns insurer John Hancock.

The company's shares lost 27 cents to $21.70 on the Toronto Stock Exchange.

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