Why Manulife Financial's Stable Dividend and Strategic Reinsurance Moves Make It a Must-Hold for Income Investors in 2025

In an insurance sector marked by low-growth dynamics and evolving risk profiles, Manulife Financial Corporation (MFC) has emerged as a standout for income-focused investors. By combining a disciplined capital return strategy with strategic reinsurance transactions, the company has positioned itself as a resilient, high-yield (4.1%) stock with robust earnings visibility and long-term shareholder value creation. For investors seeking stability in a volatile market, Manulife's approach offers a compelling case for inclusion in 2025 portfolios.

Strategic Reinsurance: Unlocking Capital, Reducing Risk

Manulife's recent reinsurance transactions have been a masterclass in capital efficiency. In Q1 2025, the company executed a $2.4 billion reinsurance deal for its long-term care (LTC) reserves, unlocking approximately $800 million in capital. This transaction, priced at 1.0 times book value with a modest negative ceding commission of 4%, not only validated the company's conservative reserving assumptions but also allowed it to offload a high-risk, low-growth asset class. The LTC block, historically prone to volatility, now sits with a third-party reinsurer, freeing up capital for more productive uses.

This follows a similar $2.0 billion reinsurance deal with Global Atlantic in February 2024, which unlocked an additional $2.0 billion. Together, these transactions have freed up $2.8 billion in capital, which Manulife has committed to returning to shareholders through share buybacks. By reducing exposure to alternative long-duration assets (ALDA)—now just 7% of total invested assets—the company has further strengthened its balance sheet, ensuring it remains well-positioned to navigate macroeconomic uncertainties.

Dividend Sustainability: A 26-Year Track Record with Room to Grow

Manulife's dividend story is equally compelling. The company has maintained uninterrupted dividend payments for 26 consecutive years and raised them for 11 straight years. In February 2025, it announced a 10% increase in its quarterly dividend to $0.44 per share, yielding 4.1% as of March 2025. This increase, coupled with a robust leverage ratio of 23.9% (below its 25% target) and a LICAT ratio of 137%, underscores its ability to sustain and grow payouts even in a low-growth environment.

The dividend is well-supported by earnings. In Q1 2025, Manulife returned over $1.2 billion to shareholders through dividends and buybacks, with core earnings per share (EPS) of $0.69 (slightly below the $0.70 estimate). Analysts project Q2 2025 core EPS at $0.97, driven by strong performance in Asia Annual Premium (AP) sales (up 50%) and positive net flows in its Global Wealth and Asset Management (WAM) segment. This earnings visibility, combined with a dividend payout ratio that remains conservative, provides a buffer against economic headwinds.

Buyback Yield and Earnings Visibility: A Dual Engine for Shareholder Value

Beyond dividends, Manulife's share repurchase program has added another layer of capital efficiency. In Q2 2025, the company completed a $250 million buyback program, repurchasing 5.8 million shares (0.34% of outstanding shares). These buybacks, funded by reinsurance proceeds, are expected to boost EPS by reducing the share count and enhancing returns for remaining shareholders. With a buyback yield of 4.8%, the total shareholder yield (dividends + buybacks) now stands at 9.0%, making MFC one of the most attractive income plays in the Canadian market.

Earnings visibility is further bolstered by Manulife's global diversification. Its Asia operations, which contributed to a 50% surge in AP sales in Q1 2025, remain a growth engine, while its U.S. John Hancock business benefits from a stable annuity market. Meanwhile, the WAM segment has shown resilience, with $500 million in net inflows despite market volatility. This geographic and product diversification ensures that Manulife's earnings are not overly reliant on any single region or product line.

Why This Matters for Income Investors

For income investors, the combination of a stable 4.1% yield, strategic capital return, and risk mitigation through reinsurance creates a rare trifecta. In a low-growth insurance sector, where margins are often squeezed by rising interest rates and regulatory pressures, Manulife's proactive approach to capital management sets it apart. The company's ability to unlock capital from low-growth assets and redeploy it into shareholder returns ensures that its dividend remains sustainable and its stock price is supported by buybacks.

Moreover, Manulife's balance sheet strength—highlighted by its LICAT ratio and low leverage—provides a safety net in case of economic downturns. This is critical for income investors, who prioritize companies with strong financial buffers to protect against dividend cuts.

Final Thoughts

Manulife Financial's strategic reinsurance moves and disciplined capital return policies make it a must-hold for income investors in 2025. By unlocking $2.8 billion in capital and committing it to buybacks and dividends, the company has demonstrated a clear commitment to shareholder value. With a 4.1% yield, a 10% dividend increase, and a robust balance sheet, MFC offers the rare combination of income stability and growth potential in an otherwise lackluster sector. For those seeking a resilient, high-yield stock with long-term capital efficiency, Manulife's stock is a compelling addition to any portfolio.