Thursday, April 10, 2008

more Sun Life

Today I added to my position in the financial services firm, Sun Life Financial (SLF). For my thoughts on Sun Life have a look at my Sun Life Financial purchase post, which I put up on this blog when I initiated my position about one year ago. Back then Sun Life was trading around $50 per share and yielding 2.5%. Sun Life's 2006 earnings per share (EPS) was $3.58/share. The company was paying a dividend of $0.32/share.

Fast forward to today where I bought Sun Life at $47.10/share where it yielded 3.1%. Sun Life's 2007 EPS was $3.84/share. The company is now paying a dividend of $0.36/share.
Therefore since I initiated my position last May the following has occurred:
  • Sun Life has grown its earnings per share by 7.3%
  • On a 'constant currency'/operating basis EPS would have been up 13%
  • SLF has grown its dividend per share by 12.5%
  • The stock's yield has risen from 2.5% to 3.1%
  • Return on Equity (ROE) increased from 13.8% to 14.3%
  • P/E ratio has dropped from 13.6 to 12.1
  • The share price has dropped by 6.7% to $47.10

On my valuation model Sun Life looks cheap as it is trading more than 20% under it's fair value given a 9% EPS growth rate and using a multiple of 11.5x. I will likely keep buying these financials as long as they remain good value compared with the rest of the market. Averaging down on a consistent company such as SLF, as dividends, earnings and other fundamentals continue to grow, is a no brainer.

7 comments:

torbjornrive said...

Hello. I've asked this before, but may have failed to return and look for an answer:

Do you keep dividend yielding stock in your RSP, or not? Yes and No?

What are your thoughts on this?

Often a reader,
-T.

MG said...

Hi torbjornrive, No I do not. I hold low cost mutual funds in my RRSP. There would be nothing wrong with holding dividend stocks there though.

ken said...

Hi Mr. Money Gardener,

Thanks for your information.

This stock is fundamentally sound company and its has a good run up since its start and i found that it has a nice support at around $43.
Quite a good investment for long term.

One question though,

Do you know why the company's sale growth is down by 12%?

Thank you
ken
optionsinvesting@gmail.com

MG said...

Hi ken,

Reasons for the revenue drop are as follows:
1. Appreciation of Canadian dollar vs. US dollar
2. Volatile capital markets in 2007
3. Changes to Canadian investment accounting rules starting in 2007.

..MG

torbjornrive said...

Thanks MG, not that I thought it would be a bad I idea, as tax sheltered is always good for 20+ years...

always looking for input is all...

-T.

Nurse B, 911 said...

Congrats on adding to more of your existing holdings; great value at this time. But each time you buy it seems that the stock goes lower within only a few days: first TD & now SLF. If I knew what I wanted to add to in the next few days I'd encourage you to buy that stock next!! (haha)

MG said...

no kidding Brad. My short term timing is brutal. Hopefully me long term results make up for it.