[lb71]

I thought perhaps we had passed the point where financials would cut their dividend, but MFC announced today it would be cutting its dividend in half in order to boost its capital position by about $800 million a year. This was surprising and MFC's shares are down 9% as I type. Wonder how safe some of the bank stocks are against a dividend cut. Those high yields do not look so good anymore.

 

[tojo]

I was shocked to hear that as well….MFC use to be one of my biggest holdings, but I dropped my position a couple of months ago as I couldn’t figure out where they were going with their guaranteed annuity product and the huge losses they were taking. They actually had a pretty decent quarter this time, which surprised me even more that they decided to cut. I still hold some of their bonds and prefs, which I think should be safe but you never know these days.

Crossing my fingers that this won’t open the floodgates. Don’t care much about SLF as I dumped that one the same time as MFC. I have a bit of GWO, which took a hit today on the news. Nothing like a major dividend cut to take the air out of a rally. On a brighter note, BCE raised theirs 5% .

 

[moneygardener]

This was a suprise and it makes me think they are preparing to take advantage of the credit crisis by making some acquisitions globally. What a huge move though. I don't think you can extrapolate this to the banks, but it does 'break the ice' in a way.

On the topic:
http://network.nationalpost.com/np/blogs/tradingdesk/archive/2009/08/06/manulife-dividend-cut-could-help-bank-stocks-despite-fears.aspx

 

[tojo]

They really don't have anyone to blame but themselves, taking on unhedged bets with their segregated funds. Now they are making shareholders pay for it. Its been said that investing in MFC the common is a play on the market, not the insurance company. If that's the case I might as well just buy an index fund.

 

[jensencylin]

Newb question

If the NYSE:MFC has a 50% reduction in dividend

Does that mean the TSE:MFC will have the same?

 

[FrugalTrader]

Newb question

If the NYSE:MFC has a 50% reduction in dividend

Does that mean the TSE:MFC will have the same?

Yes, they are the same company listed on two different exchanges.

 

[FrugalTrader]

So what are you guys going to do with your MFC positions? Hold? Sell? Buy more?

Personally, i'm staying the course.

 

[moneygardener]

I own it in a DRIP; I am holding and not adding.

 

[MoneyMaker]

still holding.. will add more if it goes below 20

 

[Andrew]

Sold entire position after buying in at $13 and change.

 

[tojo]

2.3% yield for a high risk stock...no thanks.

 

[SavingMaster]

Manulife has been a dog with fleas for a while. The dividend cut only adds rancid icing on the cake.

 

[tojo]

Somehow, when the baton was passed from D'Alessandro to Guloien, the criteria for a dividend cut had changed:

http://www.bloomberg.com/apps/news?pid=20601082&refer=canada&sid=asdckhVgxqsY

In retrospect, Manulife had to cut the dividend to cushion the risks from their exposure to guaranteed insurance products, the bulk of which sits in their US Wealth Management division.

If you look at their earnings from the last three quarters: +1.77 Billion, -1.1B, -1.87B, you see an extreme swinging of the pendulum. These huge swings is evidence MFC is totally tied to the market from these high risk investments.

The new CEO is scared - so scared that at the next market downturn MFC will be wiped out. This is why I'd be scared too if I owned this stock....

 

[mogul777]

Manulife has been a dog with fleas for a while. The dividend cut only adds rancid icing on the cake.

Missed the 150% recent rebound in the stock price did you?

Dividend cut may be suprising, but a correction in a stock that has soared is hardly shocking. Frankly it's about time the Canadian financials got on board with the rest of the world.

Headlines like this one "Credit delinquencies up 24% in June" disappear off the front pages rather quickly these days. Too far too fast does come to mind with all these 52-week highs being breached. However, it's likely just a bump in the road for the financials scamarama party train.

 

[Brad911]

I recently sold off a portion of my position in MFC not on speculation of any dividend cut, but because the position had exceeded my upper limit for any one holding in my DivG portfolio. The timing was convenient, but I'm not adding to it at the moment as I expect some increased volatility in the share price over the next week or so.

The company, for all its segregated products problems, still has a very profitable and well run insurance business that is worth a considerable amount of money. This cut, while painful to my cashflow, does make sense from a capital perspective. That's why you diversify. For my time horizon I expect MFC to be much higher in 20 years time, so I'll sit, wait and add to my position when prudent.

 

[tojo]

Missed the 150% recent rebound in the stock price did you?

On the contrary, SavingMaster has made a very accurate assessment of this company. If you do a search on Manulife's financial reports you will see how much of MFC's fortunes or misfortunes are tied to these toxic products. And they ain't going away anytime soon.... If I was a recipient of one of these guaranteed insurance products, I'd be very happy to hang on to it for life - and when the sh*t hits the fan, MFC pays through the nose to meet their contractual obligations.

What on earth was D'Alessandro thinking (other than white sand beaches) when he cooked up these things? Let's just say he orchestrated his departure in a VERY timely manner, because if the market were to had tanked any further, there would have been a public lynching of this man.

If I still owned MFC I'd swap it for one of those Beta Pro ETFs...same thing really, but at least I know what I'm getting and probably sleep better at night...

 

[lb71]

What on earth was D'Alessandro thinking (other than white sand beaches) when he cooked up these things? Let's just say he orchestrated his departure in a VERY timely manner, because if the market were to had tanked any further, there would have been a public lynching of this man.

To be fair to D'Alessandro, he did not invent the products, but MFC did very well selling them. The problems only arised after markets came tumbling down as far as they did. No company would have sold these products if they knew what was coming. It is easy in retrospect to lay the blame, but these products are very profitable for companies, that's why so many sell them. He did announce his retirement well before the market collapse too.

From the $1.7 bn in earnings yesterday, $2.5 bn was from seg fund guarantees, and most of that was reserve releases. A lot of the losses suffered recently was due to reserve strenghtening of these guarantees. As markets generally increase, those losses will reverse themselve over time.

 

[thedividendguy]

What I find most interesting about this story is the fact that for a while I can recall reading all the newspaper and magazine articles touting how good an investment Manulife would be. It was hard not to fall into the trap of following the herd.

That being said, it has just another lesson to us dividend investors to not let dividend growth be the only factor we look at when evaluating potential dividend investments.

For me , it is about the ol' live and learn and most importantly relying on a well defined and diversified asset allocation.

TDG

 

[tojo]

To be fair to D'Alessandro, he did not invent the products, but MFC did very well selling them. The problems only arised after markets came tumbling down as far as they did. No company would have sold these products if they knew what was coming. It is easy in retrospect to lay the blame, but these products are very profitable for companies, that's why so many sell them.

Yes, to be fair, it's always easy to analyze with a rear view mirror...but what they did was conduct business using very poor risk management. There is no way anyone should proceed without proper analysis of the risks involve for EACH scenario, no matter how improbable, given what's at stake and the impact to the people involved. What they did was make a huge unhedged bet on the market, and it inevitably came back and blew up in their face.

In hindsight, again, they knew they should have done this differently - the results may not have been as profitable, but at least the risks would have been mitigated, and perhaps they would have been more aligned to the business philosophies of an insurance company.

 

[tojo]

That being said, it has just another lesson to us dividend investors to not let dividend growth be the only factor we look at when evaluating potential dividend investments.
For me , it is about the ol' live and learn and most importantly relying on a well defined and diversified asset allocation.
TDG

Dividendguy, this is probably the wisest thing I've heard in a while...I too use to think smugly that the dividend growth strategy was the Holy Grail to investing. All you have to do is speak to someone who invested in Bank of America, Pfizer, GE and now Manulife to understand that this is not true...